What if I told you more than half of all U.S. housing loans are now made by just three giant banks. Would you say such a monopoly couldn't happen in America? That it flies in the face of the free market competition we've always known.
What if I told you that you and I and the other U.S. taxpayers are guaranteeing about 85% of all new mortgages, trillions of dollars in liability.
What if I told you many of these loans require as little as 3.5% down and are easy to qualify for. So if anything goes wrong, it's tempting for the homeowner to give the home back to the lender, which is ultimately you and me as taxpayers.
Finally, what if I told you no Congressional hearings have been held and it is being done with little media coverage, and not the headlines it should make. Unbelievable?
It's all true. Bank of America, J.P. Morgan Chase and Wells Fargo are the three banks that won this secret lottery. They make huge fees underwriting these loans and then dump nearly all of them off to Fannie Mae and Freddie Mac, government institutions whose liabilities you and I guarantee.
It's no wonder these banks are now making so much money and are being hailed by the U.S. government as great examples of the success of corporate bailouts. When in fact they are on welfare, on a magnitude no welfare family could attain in a million lifetimes.
Now ask yourself, what happens if people continue to lose their jobs and can't make their mortgage payments? What happens if real estate prices begin to fall again? What if the number of foreclosures continues its rapid rise?
Despite what you've heard about rebounding home prices, the U.S. housing market is on life support. If the artificially low interest rates created by the Fed and the recent special tax benefits are removed, it will collapse. And if it collapses here, it will collapse across the globe.
The U.S. government is so desperate to rescue its economic system and rescue the corporate giants that caused these massive problems, it doesn't even have an exit strategy from these unprecedented bailouts.
Nor has there been a regulatory revolution to ensure what caused the global economic meltdown won't happen again. In fact for Wall Street it is business as usual, right down to the big risk transactions and Mt. Everest size bonuses.
There is no market discipline. As one pundit said about Wall Street, "It's heads I win, tails you bail me out." That thinking has now permeated these institutions as they gladly make their campaign contributions to protect their access to your money.
How risky and under priced are these mortgages? When the Wells Fargo CEO was recently asked if the bank would keep any for its own portfolio he said, "We're not putting on 30-year [fixed rate] mortgages at this rate." In other words he wouldn't put the bank's money in these cheap mortgages.
What can you do to protect yourself from this madness? Take the following steps:
1) Keep your job. Become expert in a vital part of your firm. For example, in the radio industry, if you can deliver ratings or ad sales, your job is secure. Wherever you work, get into a revenue producing position.
2) Buy some one ounce gold coins. The corporate bailouts, the wars and the housing guarantees will ultimately jeopardize the value of the U.S. dollar. If inflation kicks in as I believe it will, you'll be glad you owned something more than paper money.
3) If you can afford to, invest in residential real estate. Track the prices and at the time you feel is right, buy a rental property, using an artificially low 30 year fixed rate mortgage set by the Fed. Even in bad times, everyone needs to live somewhere and someone will rent from you.
This not only will give you income, but if inflation does kick in, you've locked in most of your costs, while being paid rent in ever higher inflating dollars.
4) Protect your health. You can have all the financial security in the world and it will mean nothing if you're not around to enjoy it.
In summary: The U.S. was the greatest manufacturing powerhouse the world had ever seen. Now most manufacturing is done overseas and 70% of the U.S. economy is based on people buying consumer goods, often made elsewhere. Of the remaining 30%, a sizeable portion is military production and other government employment, all paid for by the taxpayer.
As is apparent, this is an unhealthy and unsustainable economic system and to right itself, it's going to have to go through a painful process, politicians' promises aside.
But the U.S. is still a vibrant, creative nation. Its Silicon Valley is the envy of the world as it creates new industries from Google to eBay to Facebook, from Laptop Computers to Ipods and it has the potential of developing technologies that can solve many global problems.
In the meantime, we will do as was done during the Great Depression and help each other as we get through this horrific financial period and build a far better future economy for ourselves and for mankind the world over.
Dick
Note: A key source for this piece is "U.S. Bets the House," The Wall Street Journal, 9/18/09 http://online.wsj.com/article/SB125322329116020929.html#mod=WSJ_hps_sections_realestate
1 comment:
As a capitalist, I'm saddened by our country's failure to allow for corporate darwinism. Taxpayer money is supporting companies that should have been bankrupted for their greed and their shareholders and boards should have been punished for their lack of oversight. Instead, the massive lobbying saved and continues to save companies that should disappear.
No consequences for their stupidity excpet to expose the average American with more economic pain.
I agree with the predictions stated above and would argue that the "V" curve recovery will turn into a "W".
Post a Comment