Paul Kedrosky provides the chart of the day: predictions from Credit Suisse concerning the next wave of mortgage defaults.
A few of the choice comments:
I look on the bright side. If the "Mensa"s in Congress and their stimulus package bring about a nasty bout of inflation, I'll at least be able to pay off my mortgage just be selling my telescope.
The wave of mortgage defaults which is going to completely transform America is not captured by this graph - I was talking with an older friend of mine, an 85-year-old widow, and she was saying that most of the people who live at the 55+ development where she owns a townhouse have mortgages, because their financial advisors thought that was the right thing to do - and it would have been if the previous 10 years had represented normalcy in America. She also said that 20% of the units are empty or rented at a loss, because seniors who would normally move in can't sell their existing houses. She also said that many of her friends had heard from their brokers that their investments will run out in about 3 years unless things change quickly. Either deflation or extreme inflation is going to hammer this demographic, many of whom are active and in excellent health.
In previous severe downturns, most older citizens were not highly leveraged with mortgages, they lived in houses that typically were paid off or had moved to rental-type facilities where costs were more likely to track general economic conditions. People may be willing to let younger, employable people get tossed out and start over, but there is bound to be a visceral reaction to the prospect of grandma living under a bridge and eating whatever critters she can whack on the head with her walker. There will almost certainly be a large increase in redistributive social programs if this scenario plays out, and I can't see any way it will happen differently. Whether you think that is a good thing or a bad thing, I suspect that we haven't begun to see the rollback of the Reagan legacy which will be driven by the abuses of unfettered greed masquerading as the free market.
"Reagan legacy" was a result of many, many years of bankrupting Keynesian policies culminating with the unmistakable "Carter legacy".
The current "rollback" will be very short lived. In order to be able to redistribute money, you need to have them first. America doesn't. Even worse, it has little to sell to the rest of the world nowadays. The last important export product, financially engineered derivatives, has just become roadkill...
Writing at New York's paper of record, Michelle Malkin observes:
Yes, many responsible borrowers are having trouble negotiating loan modifications. But this $50 billion giveaway to the banks - on top of the upward of $2 trillion more from the Treasury department, on top of the $700 billion in original "TARP" funding - is throwing more bad money after bad.
This massive expansion of government meddling in the housing market will just delay the inevitable. A report released by the Comptroller of the Currency in December showed that more than half of loans modified in the first quarter of 2008 fell 30 days delinquent within six months. And after six months, 35 percent of people were 60 or more days behind on their payments.
Where's the fairness in forcing prudent homeowners and renters to subsidize people who bought overpriced houses and to rescue the banks that lent to them?
It's sacrilegious to say it in the Age of Obama, but it needs to be said: Home ownership is not an entitlement. Credit is not a civil right. Your property-value preservation is not my problem...
From the actions of the Demarxists, however, it apparently is our problem.
Hat tips: TigerHawk and Larwyn.