The Numbers Tell the Story

I seem to be locked into viewing the continuing foreclosure momentum. There are 5 million families who owe at least 25% more than what their house would sell for. 2 million go underwater if their houses loses 5% of their market value. There are about 11 million underwater. The biggest statistic is that since 2006, families have lost $7 trillion in home equity value. That has created a huge psychological impact to feeling rich or poor and what and when to spend money. Compare that to the trillions in debt this country has incurred and one can see that we are being bombarded from all directions. The housing situation is more subtle yet powerful in its influence over everything else. Look at Fannie and Freddie and the billions they ask for quarterly with no ceiling in effect like our debt ceiling that Congress has to vote on. They receive what they ask for. This is a reflections of millions of people losing their biggest asset. Viewing the headlines today, it seems to be under the radar because there has been so much emphasis on it in the recent past. Yet it will come back to the surface again, because action is required to set this on a different path.

Bernanke's latest implemented plan to buy $600 billion of bonds to keep the interests down and the dollar lower has created the opposite effect. Since our search for a home, the mortgage rate has gone from 4.12% to 4.7%. That is a 14% increase in less than two months. On a $150,000 mortgage, that is an extra $72.50 a month.

Numbers are meaningful. They tell the story. Is there anyone interested in reading it?

TARP Repayment, Housing

Timothy Geithner recently said, "None of them would have survived... the entire financial system and all the major firms in the country, and even the small banks across the country, were at that moment at the middle of a classic run, a classic bank run." This statement is in contrast to what the executives of the big banks said, like Goldman Sachs who claimed they would have survived without government help at the peak of the crisis. I wonder what he means by a 'classic' collapse. I presume he's talking from the textbook.

Imagine being the handful of people who believed the entire system was collapsing and what they were thinking and feeling at the time, like Paulson and Bernanke. Look at how a few can control the whole course of our financial system. Congress totally bought into that fear and there was no 'check and balance.' I'm still supporting the removal of Bernanke.

Good news is that most of the TARP will be repaid and that at least $200B is saved. I hope the government doesn't go out and immediately spend the savings. There are still hundreds of billions the government guarantees of devalued securities and other assets of the banks. There needs to be some form of 'available savings' for unexpected disruptions.

I can't help but comment on the housing industry. Chase said in November that 50% of the borrowers on their mortgages didn't make the 3 months of the payments required to make modified loans permanent. What the government is forcing the banks to do is not achievable because people were given loans in the past that even with monthly reductions, extensions on the timeframe of the mortgage, and low interest rates still cannot qualify, and it is outside their financial means to continue. Yet the government seems to have a one-tracked mind and continues this path that is nonproductive. Also, one of the big housing websites, Trulia.com is showing increasing new listings for foreclosures that are coming onto the market in the areas that I follow in California and Oregon.

Given my belief that each of us has a soul plan, there is a mixture of destiny and choice. I also believe that the world has a soul plan along with each individual country. I wonder what the U.S. has destined on its path as we move into 2010. It is a time of major change. There is no doubt about it based on what we have experience in the last two years.

Addendum to Previous Blog

Today, two important points to mention:

1.  The office of the comptroller said that the re-default rate is 58% of those borrowers who had their mortgages modified in the first half of 2008.  These will go to foreclosure.

2.  Feds Kohn said that bank lending has dropped back in recent weeks, resulting from tightening terms and standards.

Yes, the market is up again today based on 'surface' news of president-elect Obama's job creation plan and an imminent rescue of the auto companies.

Keep looking at our underpinnings.  That is going to determine the lasting affects on this market.  

I think what Abraham Lincoln said when he took office and the colonies had separated from the group, when he mentioned having "patient confidence" is great advice for us to use to minimize the influence of our emotional selves when investing in this market.  That's the one thing you do have control over, how you respond to the events happening.  Actually, it's a prudent motto when dealing with life.

My opinion of the $700B bailout

After much thought, I wrote the following letter to Ms. Feinstein, Ms. Boxer, and Mr. Herger.  I tried to mail this to Christopher Dodd who heads up the committee on finance, but he only accepts mail from citizens of Connecticut.

"I am representative of the ordinary citizen who has money invested in the stock market and have seen it drop by 50% in the last 3 months.

After reading and hearing about the $700B bailout plan, I am OPPOSED to it being passed.  The fact that this is a guess without knowing the ramifications until it actually happens is too big a risk.  Also, as a citizen, I am against buying 'toxic mortgage debt' that no one can discern as to who owes who and the valuation of it is unquantifiable.  I think that the excess that has occurred because of the bubble in the housing market needs to be corrected by allowing the market forces to take their way.  This destruction allows us to reach the bedrock and allow for reconstruction.  More debt to our already staggering balance only makes us weaker as a nation.  Collectively, we all need to learn how to manage debt and not let it get out of hand.  The time is NOW.

Thank you for reading my view."

I feel strongly enough about this subject to write to these representatives.  I welcome reading your opinion here.

Red Flags

Emotions of the collective are ruling the roost.  The European markets are showing their level of confidence in what congress is doing with the proposed bailout by the Feds.  With a big run to commodities, especially oil at a jump of $25 in one session, that is a sure sign that there is information in the subconscious about to surface that reflects a stark picture of our financial system.  

Democrats and Republicans are working to add more to what the Fed recommended to stabilize the system.  Making the government have access to owning the company's stock who sells the 'toxic mortages' is a form of nationalization like what happened with Frannie, Freddie, and AIG.  This dilutes the value for the stockholders, like you and me.  Even those big mutual funds and institutions holding shares are made up of contributions by the individual.  Now we have an idea of the exposure of number of companies that may have their shares diluted by just looking at the list where short selling is not allowed.  The list grew bigger today.  

One other addition I would like to comment on is a provision to help mortgage holders prevent foreclosure.  What about those who have the financial capability to pay their mortgage, yet walked away because the loan is worth more than the home?  What percentage of the overall defaults are made up of these individuals?  They do not need to be rescued.

Going back to my original post of 9/15 and talking about the 'Big Bang,' the latest is the collider is out of commission for at least two months.  I predict there is a timeline similar for the markets and the turmoil to continue.  

Fed Investments

Based on the Fed deciding to 'loan' $85B to AIG today, and also own 79.9% of the firm does not compute.  It seems they now own the majority of the largest insurance company in the world, adding to their portfolio of FRE and FNM.  I can't imagine how much more debt they are exposed to with insurance liability along with being exposed to several trillion of mortgage guarantees. Is there a limit as to how much this country can create by printing money and still look 'stable' as the S & P recently determined? Is there an invisible line that we are close to crossing to the point of no return where the market will determine the direction of the financial system?  If so, that means the collective consciousness will have the power.  Thoughts to consider as we enter day 3 instability with the stock prices of the financial sector.