Treasury Secretary Henry Paulson, who not too long ago was trying to minimize the impact of the subprime mortgage mess, finally realizes we've got a problem, but still will not really come clean on the severity of that problem. As fellow blogger Peter Cohan posted last week, the costs for the meltdown vary from $104 billion to $4 trillion. Bush I's savings and loan crisis ended up costing us $240 billion. I predict Bush II's mortgage mess will far exceed that with a lot more individual homeowners, investors, banks, and other lending institutions hard hit.
Paulson keeps holding out for a soft landing and by making statements like he did at a conference in New Delhi, India, today like, "We haven't hit the bottom yet in housing." or "There is enough strength in the economy that we can grow through this," all he does is delay the inevitable. It's time for straight talking about how deep this crisis truly is and how long it's going to take to get out of this mess. Then, quickly announce initiatives for starting the healing process that will lead us out of this mess.
We've already seen the fallout at the highest levels with major losses for Countrywide (NYSE: CFC), Merrill Lynch (NYSE: MER), UBS (NYSE: UBS), Citigroup (NYSE: C) -- just to name a few and the list is growing daily as financial institutions decide to own up to their mistakes. Millions of homeowners are losing their homes to foreclosure and we're likely to see those numbers continue to climb for the subprime homeowners through the end of 2008. Then another, even bigger group of prime loan holders will be hit in 2009 and 2010. These are the folks who took Option ARMs, who I wrote about last week.
You don't even have to have one of these risky mortgage loans to fear being hit by this mortgage mess, people with mutual funds and money market funds may be exposed and not even know it.
Are you or someone close to you caught up in this mess? What do you think should be done?
Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to the Federal Reserve" and the "Complete Idiot's Guide to Improving Your Credit Score" (due out in December).
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Reader Comments (Page 1 of 1)
10-30-2007 @ 12:48PM
Julie said...
How does a "free market" correct?? Risky and greedy companies and people need to take the pain. But the Wall Street boys and bankers are pouting and the Fed will give in to them. Rates will be cut to rescue them while the average American will pay the price for cheaper money.
10-30-2007 @ 12:49PM
Tom said...
Bankers and greedy lenders should feel the pain...but rich people take care of rich people. Rates will be cut to help them. So much for "free markets." Business runs quickly to the government to save their asses for poor decisions. So much for the "free market."
10-31-2007 @ 3:32PM
AmericasWatchdog said...
We have the Homeowners Consumer Center and the National Mortgage Complaint Center, the mortgage train wreck is not a result of sub-prime nor is it limited to sub-prime----its the entire mortgage market. There are over 1.5 million adjustanble rate mortgage re-sets coming in 2008 and we think half will go bad. Many of these borrowers are not poor credit risks. They were individuals with good credit that were suckered into a mortgage product that was too good to be true.
We are not sure if Countrywide will survive as they were a big player in "pay option ARM's. We also think Washington Mutual & World bank have big exposure in this mess as well. Merrill will take another 7 to 10 billion write down in the 4th quarter.
Heres the real issue. Its about valuations. The issue: Houses are not worth what they were a year ago. Banks or lenders in many cases provided borrowers with 90% or 100% financing. The issue in our minds. What does the borrower do when the house is worth less than the mortgage? We think many borrowers will simply walk away.
10-31-2007 @ 3:33PM
Americas Watchdog said...
We have the Homeowners Consumer Center & the National Mortgage Complaint Center & this mess is not limited to sub prime. Its the entire mortgage market. Pay Option ARM's sold by folks like Countrywide, WA MU, World Savings look like they are radioactive. By this time next year we think they will be glowing in the dark. We also think at best, the future of Countrywide is grim. Merrill will have another big write down (4 to 7 billion in the 4th quarter & pension funds will be standing in line in front of Congress for a bail out by this time next year)
We may be 6 months ahead of Wall Street on our information, but we can't figure out why? Wall Street is supposed to be looking 6 to 10 months out too. By the way, the "sub prime" mortgage mess is not sub-prime at all. The mortgage train wreck is about valuation and or the fact that banks sold 90% to 100% financing to homeowners whose house is now only worth 0.80 cents on the dollar. The big boom that will drive this point home is when California's once booming real estate markets take a big dive in the 4th quarter of 2007 and even a bigger dive in the first quarter of 2008.