Countrywide Financial, the nation’s largest mortgage lender, said yesterday that more borrowers with good credit were falling behind on their loans and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades.
The news from Countrywide, widely seen as a bellwether for the
mortgage market, initiated a sell-off in the stock market, which is at
its most volatile in more than a year. The Standard & Poor’s
500-stock index fell 30.53 points, or 2 percent, to 1,511.04, its
biggest one-day drop in nearly five months. The dollar dropped to a new
low against the euro, edging closer to $1.40 to 1 euro. Stocks opened
sharply lower in Japan this morning.
The slumping housing
market has become the biggest worry for the stock market, which just
four days ago set records, because of its potential impact on the
broader economy and financial system.
Can we please cut the crap?
Our economy has been running on fumes since 1981, when the right wing took over, and started cutting taxes and the government by and large started abandoning its constitutional duty to "regulate commerce."
Everything about American business now is about short-term profits; nothing else matters one little bit. You know why health insurance companies are able to screw the American people? Because they only view their profits through a quarterly or annual prism. See, when they refuse to cover someone, and that person gets care anyway, hospitals have to raise their prices to cover that loss. So, what does the insurance company do? Why, it raises premiums, of course, to cover the increase in hospital rates because they refuse to cover people who actually need health care. It looks great on the bottom line each quarter and per annum, but it creates a huge problem for the system over the long haul.
That’s how almost all of our economy works these days, and the housing market is no different. (Coincidentally, I’m writing a large piece that will go up in the next day or so about this very thing.)
I often walk past the house I grew up in, and marvel at the fact that the house is now 56 years old, we moved out 30 years ago, and the place looks the same, except for the huge cherry tree in the back yard, which we planted when I was 9; it’s huge now. What has changed, however, is the price. We sold it in 1977 for $42,900. When I moved back to the area in 1998, the house could be gotten for about $120,000, and as late as 2004, it could still be had for about $135,000. Then, suddenly, lenders developed "creative financing" schemes, in order to get people into homes who really couldn’t afford to own a home, and the house sold in January 2005 for $225,000, and the house next door sold two months later for $275,000.
The problem is, many of these homes were purchased with paper money. Selling someone who makes $25,000 a home priced at $250,000 with no money down is a recipe for disaster, for two reasons. First of all, they’re a foreclosure waiting to happen; it’s almost inevitable. But worse, they cause home prices for everyone to become overinflated. The originators of these loan programs love it, because they own other properties, which they buy and sell for the inflated profits, and when the time comes to foreclose, it becomes someone else’s problem.
But at some point, and that point came about a year ago, the bubble bursts, and suddenly, all of these foreclosures cause the market to be glutted, and there isn’t enough money left for legitimate mortgage lenders like Countrywide to help out the folks who actually make enough money to own a decent house, because they’ve been forced to mortgage all of these overpriced and overvalued homes.
Folks, the whole ARM market was built upon Enron-style accounting. and the wingnut government loved the idea, because their patrons made billions in short-term profits, by screwing people.
Expect a recession starting about six months ago, folks.