|
Foreclosures have doubled in the last year and are expected to accelerate even more in coming months.
Housing starts are at their lowest level in the last 10 years.
In my humble opinion, you have to have your head pretty far up George Bush's ass to not realize there's something dramatic happening.
A big part of the problem is that these Sub-Prime Loans have been basically unsecured. They released borrowers from almost all documentation obligations. As a result, something like 1/3 of borrowers inflated their income on their applications. So they're in loans they actually can't afford, and that are only going to get more expensive over time.
So you could say, well that was foolish on their part, they deserve what they get, whatever. Here's the thing: our banking industry is based on the value of debt. Banks holding consumer debt are able to sell that debt to other banks--and that's the basis of the value of the banking industry and as a result of our economy. There are all these loans out that are basically valueless, because the bank now has no idea how much the guy makes, how much the house is worth, etc. That loan is now illiquid--it can't be turned into cash if the bank needs it. That illiquidity means the bank is unprepared for the sort of panic runs that illiquidity itself tends to trigger.
|