Our financial system is crumbling this week.

[TimeForGuinness]

McCain put a real scare into me last night when he started talking about the need to shore up the housing market in order to protect the retirement assets of boomers. If he thinks the objective of any good rescue plan is to prop up asset prices, then he's out of his economic mind.

Asset prices don't drive economic growth. They might reflect investor confidence and material wealth, but asset prices are not the means to economic growth. The extreme amount of leverage in the global economy (using stocks, bonds, property, etc as collateral to take more loans) means that asset prices need to find their equilibrium so investors and borrowers actually know what collateral exists. If the government starts getting involved to prop up housing prices (vs. bringing liquidity to housing markets) for the sake of retirees, be very, very afraid.

He probably wants to prop up housing prices so he can sell one of the many houses he owns.

[Jocephus]

strangely accurate music video

[/youtube]

[docellis]

strangely accurate music video

[/youtube]

this video is no longer available

[Jocephus]

strangely accurate music video

[/youtube]

this video is no longer available

heres direct link

http://www.youtube.com/watch?v=Jz8wU9DdbqU

[Arthur Dent]

Troubling WSJ Article:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

...

[Popeye_Card]

Troubling WSJ Article:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

...

I wouldn't worry. McCain has assured me he can solve this.

[Freed Roger]

aaaah - its getting to be just like the good old days...

SAN FRANCISCO (MarketWatch) - General Motors Corp. shares, already reeling from the widening credit crisis that has crippled Wall Street, fell as much as 22% in early trades Thursday, dropping to closing levels last seen around Christmas time in 1950. To put the current price tag in perspective, the Dow Jones Industrial Average is a component, closed 1951 at a mere 269 points.
In fact, the last time GM traded at around $5.40 a share, a typical car sold for just over $3,000, gasoline cost 20 cents a gallon, a six-pack of Coke could be yours for 37 cents, and houses went for $16,000.

[TheoSqua]

Troubling WSJ Article:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

...

I wouldn't worry. McCain has assured me he can solve this.

If a bill were passed that compensated that 16% of home owners with the difference between the values of their houses and the payments they owed at the average home value (140k) you'd have another 504billion dollars to dish out.

[Hungary Jack]

Troubling WSJ Article:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

Among people who bought within the past five years, it's worse: 29% are under water on their mortgages, according to an estimate by real-estate Web site Zillow.com.

...

I'm really hoping that many banks decide to write off at least a portion of the mortgage and agree to refinance with existing homeowners on terms that ensure long-term viability. They can do this without any federal intervention. The alternative of a bank owning an empty house in a faraway place seems much worse for the bank.

Perhaps the banks can limit this largesse to mortgages where the owner occupies the home (vs. homes that were bought as a speculative or income investment).

The financial companies that sell their troubled securities to the Treasury will likely receive 30-50 cents on the dollar, so a 10% writeoff of the mortgage value doesn't seem half-bad.

$.02

[Arthur Dent]

How exactly does forclosure work? Does the bank just have to take the house and slam your credit rating, or can they try to come after your savings in court?