America's property crisis (Oct 4th 2007) Nationally, people are defaulting on mortgages at a faster pace than at any point in recent decades. According to the Mortgage Bankers Association, some 5% of all mortgages are delinquent and the share rises to almost 15% for "subprime" mortgages--those lent to people with shaky credit histories. In the second quarter of 2007, almost 3% of subprime loans entered foreclosure (the process of default and repossession). RealtyTrac, a company that tracks foreclosures, reckons up to 1.5m households will enter the process this year (see chart), double last year's figure. And with some 2.5m adjustable-rate mortgages resetting to higher rates before the end of 2008, everyone knows there is much worse to come.
Nationally, people are defaulting on mortgages at a faster pace than at any point in recent decades. According to the Mortgage Bankers Association, some 5% of all mortgages are delinquent and the share rises to almost 15% for "subprime" mortgages--those lent to people with shaky credit histories. In the second quarter of 2007, almost 3% of subprime loans entered foreclosure (the process of default and repossession). RealtyTrac, a company that tracks foreclosures, reckons up to 1.5m households will enter the process this year (see chart), double last year's figure. And with some 2.5m adjustable-rate mortgages resetting to higher rates before the end of 2008, everyone knows there is much worse to come.
Cracks in the façade (Mar 22nd 2007) A recent report by analysts at Credit Suisse estimates that 80% of subprime loans made in 2006 included low "teaser" rates; almost eight out of ten Alt-A loans were "liar loans", based on little or no documentation; loan-to-value ratios were often over 90% with a second piggy-bank loan routinely thrown in. America's weakest borrowers, in short, were often able to buy a house without handing over a penny. Lenders got the demand for loans that they wanted--and more fool them. Amid the continuing boom, some 40% of all originations last year were subprime or Alt-A. But as these mortgages were reset to higher rates and borrowers who had lied about their income failed to pay up, the trap was sprung. A new study by Christopher Cagan, an economist at First American CoreLogic, based on his firm's database of most American mortgages, calculates that 60% of all adjustable-rate loans made since 2004 will be reset to payments that will be 25% higher or more. A fifth will see monthly payments soar by 50% or more.
Lenders got the demand for loans that they wanted--and more fool them. Amid the continuing boom, some 40% of all originations last year were subprime or Alt-A. But as these mortgages were reset to higher rates and borrowers who had lied about their income failed to pay up, the trap was sprung. A new study by Christopher Cagan, an economist at First American CoreLogic, based on his firm's database of most American mortgages, calculates that 60% of all adjustable-rate loans made since 2004 will be reset to payments that will be 25% higher or more. A fifth will see monthly payments soar by 50% or more.
Besides the greed factor; these bubbles have been created to mask the inherent weakness in western economies for the past 25-30 years, particularly in the US and UK. When you have a system in which the vast majority of the population-60-70%- have not had an increase in their wages for many years, leads to disastrous effects on our societies.
The fact that comments about the current financial/housing crisis throughout the msm and blogosphere ignores the underlying human and economical problems tells me we can not avoid a meltdown which may be different from the great depression but nonetheless, the consequences will be widespread and painful. Anotherwards, 'NO ONE GETS OUT OF THIS WITHOUT PAIN'
This is THE key point here. It's the single most relevant way to gut-punch the wave of sleazy, self-serving con-artist crap about reform.
There is no lack of money in the system - even if a fair chunk of it is fictitious, there's enough to still have real value.
But beyond the Anglo Disease we have Anglo Disease squared - another textbook example of explosive economic self-immolation, which seems to be the inevitable and predictable outcome of the 'reform' these snake-oiled chuckleheads are touting as a cure-all.
Constraining upstream cash supply so it stops circulating among the peasants doesn't just bankrupt the peasants - it bankrupts everyone upstream too.
So semi-socialised income distribution, currency stability, long-term investment and regulations that prevent insane lending and even more insane speculation are the only reliable solutions. They may not be as exciting and hungry as a quarter-by-quarter free-for-all, and a tiny minority of not very interesting people will have to give up their private jets.
But by god, they actually work as good solid economic principles, and are somuch less likely to trash the place than anything we've had since WWII.
