Mortgage of the future

No, this post isn’t going to be about the national debt, nor will it be about the idiotic idea that taxing the rich even more than we already do will help the economy at all. No, this post is about the woeful condition of the Mortgage industry. I don’t say the financial industry, because while many people lump them together, I view them as two utterly seperate entities.

Within the past 48 hours the institution Indymac failed. It failed in large part because Charles Schumer, one of the Senators from New York came out in a public forum and said that something needed to be done before they collapsed. Now, I can see his possibly speaking with members of congress about this situation, perhaps even speaking with the FDIC or Indymac themselves. What I think is retarded is talking about it with the New York Times. In fact, since his doing so caused close to 1.5 billion dollars that various investors had with them to be pulled out rapidly, it’s a very viable argument that he is largely to blame for the failure.

Of course, there is the fact that they gave money to sub prime lenders, there is also the fact that they made huge risky mortgages to high risk home buyers. Combine that fact with people ditching their mortgages because of the weak dollar, and you have a bank failure. It’s a fairly simple prospect. Bad Dollar + Bad Investments + Bad Lending Practices + Charles Schumer = Bank Collapse.

Now that collapse didn’t affect me in the least. It bothered me not one little bit that the bank closed down because I don’t have a mortgage with them, nor anything else with them. However the fact that the FDIC has now been forced to cover a lot of the loss that the bank incurred bothers me. The FDIC isn’t a private insurance company, it’s part of the New Deal tripe that FDR instituted in an effort to salvage the economy during the depression. It’s been a tax hole for large sums of money for decades, compared to very little actual use. Personally, I would have no problem with the FDIC going the way of the dodo. The problem is that the FDIC has something like a 50 billion dollar operating budget. Indymac had (depending on where you read it)6-12 billion dollars in debt beyond their 32 billion in assets. Once the assets have been liquidated, for signifigantly less than the 32 billion that they are “worth” the FDIC is going to be left covering the remainder. This remainder according to various economic experts can stretch to be as large as 18 billion dollars. This means that more than about 25%-40% of the FDIC budget will be used to bail out the bank. You hear that gigantic flushing sound? That’s the dollar getting weaker again as more of our tax dollars get shit away.

Now, look at that budget the FDIC has. 50 billion, let’s go ahead and dump more tax money on it and bump it up to 100 billion dollars.

Enter Fanny Mae and Freddie Mac.

Together these two organizations have a total mortgage debt of over 5 trillion dollars. Yes, that’s TRILLION. These two companies, which both use the federal reserve as their bank account comprise about half of the mortgage debt in the USA. They are both publically traded despite being in effect government institutions.

Both of them are suffering from the mortgage industry sucking ass, and both of them will be feeling the loss of Indymac. Both of them have suffered over 50% stock price loss on the market. In essence, the federal reserve is going to have to take part of that hit and cover a large part of their bad loans.

That translates roughly, RIGHT NOW, at somewhere in the neighborhood of 500 billion dollars. That is ten times the FDIC insurance rate. And if they do have to be bailed out, it will simply cause more of the same to occur, rats always abandon a sinking ship and investors act the same way. Less investors = lower trading prices = more net loss.

Ladies and gentlemen, be prepared within the next two or three years to see one or both of these two companies collapse, wipe out the federal reserve, and plunge the USA into a domestic crisis the likes of which have not been seen before. When the depression occured last century, banks collapsed world wide, and in essence the government became the employer of last resort. (That’s where we get welfare and various other government programs from by the way.) The problem this time is that it won’t just be banks collapsing, it will be the federal reserve, and thusly the government itself going bankrupt.

When that happens, various countries who hold vast amounts of dollars have two options. Hold onto them and watch their own economies sink into that deep hole, or dump them for what they can get. Foreign dumping will devalue the currency even further based on there being more money floating around that cannot be covered by the government; thusly the dollar devalues even further.

I don’t like to be the herald of bad news, but right now, there is NOTHING on the horizon that can be done to stop this from occuring. Drastic spending has been the hallmark of the government for over a decade, and now adding in the situation we find ourselves in with the housing market. I do not see a governmental solution on the horizon, nor do I see any large sweeping change that can be made immediatly that will resolve the problem.

I’m just glad that right now I have no mortgage and thusly am not going to suffer a potentially huge loss when and if this gets worse than it already is.

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2 Responses to “Mortgage of the future”

  1. Ron Says:

    So long story short, don’t bother saving up any money for the future, go ahead and cash in my CDs and savings account for pure, uncut cocaine?

  2. literateredneck Says:

    That or buy whores.

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