Another creepy day in Debt Valley…

As this article titled Credit Is Slavery suggests, 40% of new loans in 2006 were made to borrowers who were considered higher risk. An 40% increase compared with last year. With an amount of 33% of homeowners falling behind faster than last year too, one doesn’t need to have a crystal ball to forecast what what is going to happen next: the odds seem to indicate the trend of a complete real estate market freeze . Flickenstein, speaking of the subprime debacle, explains why this credit collapse is an unequivocally important event. We ought to be prepared for a serious credit tightening whose toxic side-effects will reverberate throughout the economy as a whole.

The consumer advocacy group the Mortgage Brokers Association for Responsible Lending expects home prices nationally to fall between 5%and 10% from current levels by year’s end and to extend those declines to between 15% and 20% by the end of 2008. The New York Sun continues:

… In the mid-1700s, an American lawyer, James Otis, uttered a now famous saying: “A man’s home is his castle.” Mr. Krystofiak takes a different stance. “That castle,” he quips, “will crumble or be vacant because of no king.” How does he figure that? Because of his belief that vacancies — now at about the mid-2 million mark, the highest level ever recorded in America — will rise even further, spurred in part by a number of wildly questionable mortgage loans, which has greatly heightened the vulnerability of the real estate market…. it has become harder to borrow, and banks have started to pull out of loans of 100% financing. “We’re getting a sneak preview of what’s to come; it’s the tip of the iceberg…

Rumors of a tailspin are currently being monitored by many around the world. The guardian.uk for example speaks of an American Dream being held hostage by speculators. We have nothing to fear but Wall Street the journalist warns. He goes further back, questioning Wall Street’s role in the collapse of the world’s biggest economy between 1929 and 1932. Here is how he describes the aftermath of the crisis:

Wall Street’s influence was much diminished in the wake of the slump; there was less conspicuous consumption, a much diminished influence for the financial interest, curbs on capital, a more even division of the spoils. Now, the moneychangers are back, bigger and badder than ever. Sometimes it takes a particular incident to bring to public attention what should be blindingly obvious: that the power of the financial interest (not just in the United States, but in Britain too) has increased, is increasing and ought to be diminished. Unless that happens, there is no prospect of, as FDR put it, restoring the temple “to the ancient truths”.

Manias have dotted human history and again the low middle-class is engulfed first. The (upper) middle is too on the precipice acknowledges Elizabeth Warren from Harvard. But as the British journalist puts it:

… One way of looking at what has happened over the past five years is that the innovative American financial services industry found a way of providing loans so that those on relatively low incomes could become part of a property-owning democracy… The other way of looking at it is that a bunch of snake-oil salesmen, hucksters and crooks fleeced millions of vulnerable Americans in an attempt to (a) keep the housing bubble going; (b) make themselves fat commissions; (c) create new financial instruments that could be used as speculative plays on Wall Street; and (d) pick up property on the cheap when loans were foreclosed….

There is nothing wrong with your eyes, you read correctly: this the best democracy money can buy was brought to you by The Loan Shark Lobby. In time of despair, the blame game shows people’s true color. In this non-partisan issue, we can see that both sides of the spectrum must be dealt with. Fortunately we have outlets such as the very popular magazine The Nation exposing the facts at our disposal:

… As its business has exploded–last year subprime loans grew into a $600 billion industry, more than triple the 2002 volume and accounting for one-fifth of all mortgages–the predatory mortgage industry has done its best to make sure Congress wouldn’t rein it in, spreading its largesse to Democrats and Republicans: Nearly half of House Financial Services Committee members, including chairman Barney Frank, have received money from New Century Financial Corp., the subprime lender that recently collapsed. Democratic presidential candidates Hillary Clinton and Chris Dodd, head of the Senate Banking Committee, have been some of the largest beneficiaries of the mortgage banking industry, whose dollars have provided a strong incentive for Congress to sit tight and hope the subprime bubble wouldn’t burst….. But it has. According to the Center for Responsible Lending, one out of five subprime mortgages inked in the past two years will end in foreclosure. The losses are staggering: It is estimated that homeowners will collectively be out $164 billion, with millions of families stripped of their most valuable asset… Congress now has a decision to make: Should those thousands of dollars be in their pockets, or in those of the millions losing their homes?

Yes, there is no time to lose anymore. If setting up home screenings is something you might be interested in to help stopthesqueeze.org, please contact us.