We fear the other shoe is about to fall. We have had a dead cat bounce in the market and the Chinese stock market, which in part caused the recent correction and has recovered. That by the way has the Chinese government very perturbed. The players are exiting the yen carry trade and the Swiss franc carry trade. The Swiss have just raised interest rates and it looks like they will do so again soon as speculators are exiting that carry trade as well. Another important event has been the accelerating meltdown of the $1.3 trillion subprime mortgage market. The failure in this market is affecting the better quality mortgage market, the junk bond market, the general use of risk speculation, the $600 trillion unregulated derivatives market and the more than trillion dollar hedge fund operations.
Tens of billions of dollars have already been lost and the contagion is spreading as the media tries to cover-up what is really going on. We are watching the disintegration to an extent of the entire mortgage market, which encompasses 25% of all outstanding credit. We predicted this three years ago and those who believe they are savvy discovered the problem a couple of months ago. This is a general meltdown and do not think it isn’t, and it has several years to go until the real estate sector is purged. This purging will affect other sectors of the financial markets as well. When all is said and done trillions of dollars will be lost. The subprime mortgage market should have never existed in the first place. It was created by the Fed as an unnatural set of building blocks under the house pyramid. These loans that should have never existed in the first place are what propelled the housing market upward. These unqualified buyers bought at the bottom of the pyramid pushing owners upward into more expensive homes. Now that subprime buyers can no longer propel that market higher it’s stagnated. Now the resets of adjustable rate mortgages begin. Many borrowers cannot qualify under the new tougher qualifications and most cannot make the increased monthly mortgage payments. Not only has the upward thrust from the bottom ended, but also about 50% of subprime borrowers are going to lose their homes, which will be thrown onto the market driving house prices lower. This is wealth destruction. A bubble created by Sir Alan Greenspan to prolong the collapse of our economy and financial system.
These problems reflect a systemic syndrome that has purposely been visited upon our economy and financial system. This all didn’t happen by accident. The elitists know what they are doing. Free trade and globalization didn’t just happen to us. It was planned as a gateway to world government years ago and it has been used as an instrument of power many times in the past. The problems of our vehicle industry just didn’t happen, they were planned just as the S&L fiasco was planned and our current subprime problems were planned. Our Congress hasn’t acted and won’t act because they do as they are told. They are either paid off or compromised. They march in locked goose step with the lying Treasury and our privately owned Fed. Our financial system passed the point of no return five years ago. There is no way back, our entire financial system is coming down. What we do not know is at what speed, but the results are undeniably assured.
Housing lenders, banks and brokerage firms knew that the mortgage bubble would end in collapse, but short-term profits were more important than a lasting healthy natural system. Profits on subprime loans are 25% to 100% more costly than a standard mortgage for the borrower, thus it didn’t take much for all concerned to participate.
The housing bubble was Sir Alan’s farewell signature. He presided over the 1987 market collapse and the 8/88 creation of the Working Group on Financial Markets. Then there was the 1989-92 housing and market collapse, the down days of the mid-90s, the dotcom fiasco and the collapse of the stock market again. That was followed by the real estate bubble. A litany of failures.
In just six years Sir Alan in collusion with Fannie Mae and Freddie Mac created $15 trillion in new mortgage generations. That was three times the originations of the previous five years. This was the biggest bubble in modern history. The reason was to keep the economy out of recession or depression, to allow the bankers to make outrageous amounts of money and to create enough equity for cash out financing and equity loans to keep the economy afloat as the populace dealt with falling wages and higher inflation.
You ask what’s next? By the end of the year builders will start going under and that will complicate issues even further.