US Housing Bubble Meltdown: “Is it too late to get out”? asks the headline of an article written by Mike Whitney last Apr 28, 2007
 
As long as money floods the economy, everything is fine. But it now seems that faucet has started dripping…

Liu adds, “Since the money financing this housing bubble is sourced globally, a bursting of the US housing bubble will have dire consequences globally.” Since nearly 50% of “securitized” mortgage debt is owned by foreign investors; the subprime meltdown is bound send tremors through the entire global financial system.

Question—Will the losses in the mortgage market exceed those in the S&L crisis?

Heebner:  “They’re going to dwarf those losses because the losses could easily approach $1 trillion — that dwarfs anything that has ever happened. Enron was $100 billion — this will be far greater than that… The good news is that most of these loans are owned by Hedge Funds…You hedge funds buying these subprime and Alt-A loans and leveraging them at 10 to 1. They buy a pool of mortgages at 8% and they borrow against it in yen for 3% and then lever it at 10 to 1so you have a lucrative profit And the hedge fund you are running, the manager is going to get 20% of the gain — so even if it’s a year before you go broke; you get rich until the fund is shut down”.

Heebner added this instructive comment: “The brokerage firms created “securitization” they know the products are toxic. I don’t think they are going to suffer losses; they simply passed them on to everyone else. The only impact this will have is the profits that flow from it will get less….But it is less than 3% of revenues in even the most exposed brokerage firm so THEY’RE NOT GOING TO GET CAUGHT.” ….

Where’s the justice?

Despite Hank Paulson’s cheery predictions, we are no where “near the bottom”. In fact, a recent survey showed that only 1 in 7 Americans believe that house prices will go down. Even now, very few people grasp the underlying issues or the potential for disaster. We’re on a treadmill to oblivion and they think it’s a merry-go-round.

As housing prices tumble, more homeowners will experience “negative equity”, that is, when the current value of their home is less than the sum of their mortgage. This is the very definition of modern serfdom.

Too many Americans still are overly (and naively) optimistic. That is why we started the blog, to keep you informed and spread the word. We can band together in a realistic way. There is no time to lose: we should not wait until we see the entire country to look like “the foreclosure capital of the U.S” called the Detroit area, where about one in 80 homes started the foreclosure process in the third quarter.

…… More than 10,000 homes in the Detroit area entered some stage of foreclosure in the third quarter, a 42% jump from the previous quarter and a 121% jump from the same time last year, according to foreclosures listings and RealtyTrac, a data provider in Irvine, Calif. To put that number in perspective: One in every 80 houses in Detroit began the process of returning to the bank in that time — a rate that is almost five times the national average… On average, a foreclosure property sells for 27% less than other properties in the area, says Rick Sharga, a RealtyTrac vice president. In neighborhoods with a large number of bank-owned properties, that number can slide even further. In Ohio, for example, the average foreclosed home sells for 43% less than other homes, according to RealtyTrac… realestate.msn.com