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I posted this nearly two years ago on Capitol Hill Blue...few were willing to listen.

The Recession in 2007 will be brought about not only by a general housing bust, but in particular, by the sub- prime sector of the mortgage market. The sub-prime sector is one of the riskiest types of mortgages and it also happens to have had explosive expansion in the last few years. This has been a huge boom for the mortgage/housing industry and caused the loosening of credit standards, which in turn fed the housing boom. Indeed, so many lenders have been so reckless with lending qualifications that this low- quality paper makes up about $2.5 Trillion in the market today. Add to that the fact that there was such a feeding frenzy in housing that millions of people, with no experience whatsoever, got into the Real Estate Investment boom. Most of those people, especially those within the last year to year and a half, thought that they would be able to flip those homes with ease, but it has proven more difficult then they thought and now they hold mortgaged properties which are eating into their disposable income, causing, in many cases, deepening financial stress.

On top of all that, in 2005 alone almost a third of all new mortgages were interest only; over 40% of all first-time homebuyers (another high-risk group) got 100% LTV mortgages (no money down). Now, add the Option-ARMS which carry a potential for negative amortization and the fact that 10% of all homeowners have zero equity left in their homes and it's a recipe for a very hard landing.

Investment Bank UBS just released the following: "Subprime mortgages originated in 2006 could end up having more defaults than any previous year, according to research conducted by investment bank UBS. About 8% of all loans originated this year are at least 60 days delinquent, up from 4.5% a year ago. Foreclosure rates have doubled in the past year as well. Comparing loans of similar age, 2006 vintage loans are performing worse than loans originated in 2004 or 2005, and are on track to match or top the worst years, 2000 and 2001, according to UBS. The problem is especially bad on mortgages originated with less-than-full documentation, which had a 60-day or more delinquency rate of 3.57%. The comparable delinquency rate on fully documented loans originated this year is 2.01%."

We are already seeing the beginning of the problems in the Sub-Prime market, with Sub-Prime Lenders facing financial difficulties. That is the sector to watch. When you see that sector slide toward failure then the rest of the housing market will follow, then the effects will be felt throughout the economy.

The problem is multiplied and can easily become systemic as the consequences of a down-turn in housing combined with a general recession could lead to a bust in the (MBS) Mortgage Backed Securities market which could easily trigger some severe losses in the GSEs: FannieMae/FreddieMac (which are already on shaky ground).

Republicae

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you had it

WELL republicae you certainly had it nailed...YOU should have pushed harder ....I know ,,don't say..
weee

Republicae's picture

OH...you should have seen my

OH...you should have seen my other comments on the subject regarding what was to come....I did push, but like those folks who were eating, drinking and being merry a week before the Crash of 29...who would be willing to listen? It is only natural to shun the unpleasant, to avoid thinking about a potentially disturbing future, particularly when that future involves the economic and social stability of our country and the quality of our lives, the lives of our children and in my case grandchildren and great grandchildren.

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

any wise words?

Thanks for the heads-up, seems the debat about inflation vs deflation is the hybrid-depression? In this type of economy, how does the average joe protect himself? Is it better to have commodities, cash or concentrate on debt reduction? Also, any other sites you gather info from is greatly appreciated.

Regards
Scuba

Republicae's picture

I cannot, of course, speak

I cannot, of course, speak to your individual situation however, there are certain common-sense things you can do and own, such as hard assets which are always wise to own, such as land, gold/silver.

See my post on After the Collapse: http://www.dailypaul.com/node/62659

I have a few favorite websites:

http://mises.org/
http://oll.libertyfund.org/index.php?option=com_frontpage&It...
http://www.econlib.org/
http://www.lewrockwell.com/
http://www.constitution.org/
http://www.fff.org/
http://www.independent.org/
http://www.karendecoster.com/
http://www.johnlocke.org/
http://www.federalreserve.gov/
http://forum.globalhousepricecrash.com/ghpc_site/index.html
http://www.shadowstats.com/
http://www.rgemonitor.com/
http://www.angelfire.com/pa/sergeman/issues/austrian/main.html

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Abolish Usury

Usury devalues all currency by 'viral' degeneration and should be outlawed (again)

What does a bank do other than create debt and destroy lives?

Happy Thoughts Republicae Happy Thoughts

(covers ears with hands- which unfortunately fails to prevent eyes from reading-and sings La, La, La,La,La like a small child who doesn't want to hear) "Blue Pills" on sale at Wall-Mart 15% off Oh How I wish!

Peak Oil is uncharted territory for which we are woefully unprepared. In the upcoming years, the ramifications will demand ALL our attention in rapidly changing our infrastructure to even begin to dent the massive, massive challenges just around the corner (and most likely continued wars over oil and pipelines to secure more time). It frightens the heck out of me. We have ignored the obvious for decades. No section of our society is even remotely ready to confront the coming storm. It matters not if peak oil is real or fabricated, only that the Governments of the world have collectively decided that it is on the horizon, and are preceding according. That alone is a daunting (putting it mildly) task. Add the monetary situation to the mix...happy thoughts, happy thoughts.

Republicae have you watched The Crash Course by Dr Chris Martenson yet? I'm certain you are already aware of what he has presented in an easy to grasp format but, I would appreciate any insight you have in addition as it is painfully clear that peak oil and monetary change will intersect.

www.chrismartenson.com

Republicae's picture

I'm not familiar with Chris

I'm not familiar with Chris Martenson, but I will definitely give his site a read.

I would suggest that you take a look at the following site:http://research.stlouisfed.org/publications/usfd/page3.pdf

As you can see, the stage is being set for a hyper-inflationary explosion in our monetary system.

Yes, the possibility of peak-oil is foreboding, but as I have said, we won't have to wait for a shortage of oil because we won't have the money to pay for it anyway, the only consolation, I suppose, is that neither will any other country once the dominos begin to fall in the global fiat monetary system.

Thanks again for the link to Martenson...will begin to take a look at it momentarily.

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Now there's a chart Republicae.. Argentina?

And to think what a system based exponential growth demands in the future what's next.....shudder....just chilling.

There's another thread up with Non-Borrowed Reserves. How long can this last?

You are quite welcome Republicae

The suggestion (see video chapters 17a,b,c) is that Peak Oil may already be here as evidenced by several factors-notably volatile price swings trending up. However, as we examine frequently on DP that phenomenon of late may be contrived as a mechanism to influence the masses as a consequence of political mandate connected to the monetary situation. That is not to suggest that Peak Oil is something society can ignore, to the contrary. I'm curious as to your conclusions about timing.

An excellent chapter given events this week-He graphically demonstrates how obvious the current asset bubble was;
Chapter 15 Bubbles a approximately 6:51 Direct Link
www.chrismartenson.com/bubbles
and yet, our elected Representatives and trusted Federal Reserve Chairmen; Greenspan and Bernacke, literally stoked the fire of certain turmoil. That particular section is overwhelming when you view it from this late date where the consequences of that inaction are plainly known. The suggestion that this could not be seen coming, currently proffered by the main stream media and our 'leaders' is absolutely ridiculous.

The Crash Course does emphasize that exponential growth of anything is not sustainable long term and it is critically important that each of us comes to really understand that truth. On the exponential function, there is an 8 part lecture given by a professor emeritus of Physics at University of Colorado-Boulder. This may at first seem tiring for many however, it's quite easy to pay attention, because it is so compelling. He tackles energy as pertains to population however, it is just as true with money as debt. I would urge everyone to listen to the presentation by Dr Albert A. Bartlett entitled Arithmetic Population and Energy. You sent the kids back to school. Time for you. Bear with it through sections 1 and 2 and you will be rewarded with a complete understanding of the exponential function. There is no more important realization to grasp in understanding the urgency we face as a world.
www.youtube.com/watch?v=F-QA2rkpBSY

Republicae's picture

This is not a reply to your

This is not a reply to your post Susan, but just a few thoughts while I research the site you provided:

First, we must consider the type of world fiat money has created. The world as we now know it would not have been possible under a gold-based monetary system. Fiat money, by its very nature, promotes excesses in just about everything imaginable from war, consumption to excessive and imbalanced development. The world we live in now is very different than the world we would have lived in under a commodity specie of money which maintained a balance in just about everything. Even globalization would not have had nearly as an effective medium under a gold monetary system as it has under the fiat system.

Our country would not be nearly as stratified economically under a gold system, prosperity or at least the possibility to create wealth, real wealth would have been far more balanced. The economy of this country would have been well-balanced between a solid industrial/agricultural/creative base. Warfare would have been far more restrictive to a purely defensive stance due to the restraints of a gold mandated budget.

Now to relate this to peak-oil, the massive imbalance of unrestrained development, as well as the type and direction of that development has only exacerbated the global consumption of oil. Remember, fiat money is, by nature an excessive system that breeds excess.

There is a very direct connection between the convulsions within the monetary system (seen and unseen) and the corresponding convulsions in commodity prices, including oil. It is also important to remember that excesses distort reality and create a need to further distort that reality. As a general rule, governments tend to obscure the truth about a reality that would potentially endanger their position in power. There is no doubt that the published supply of global oil is exaggerated to benefit the stability of certain governments, but as we have seen by our own governments actions, the truth can be seen with the actions it has taken over the years. Observation of our government gives clues to a reality that they prefer not to disclose for such disclosure will threaten their ability to maintain power and confidence. It is, after all, a question of confidence; when a government loses the confidence of its people then it must naturally resort to other more coercive measures to maintain their position. It is similar to fiat money, in order for it to work there must be a degree of confidence in it otherwise it will rapidly lose its ability to serve as a medium of exchange even with the most harsh legal tender laws.

It is apparent that there are several forces at play in this country at the moment and indeed at play around the world. The best and the worst times are just ahead of us for as more and more people forsake their faith in the government and its monetary system the easier it will be to free them from the chains that have bound their minds and hearts. We must be prepared to stand in the gap !

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Thus the push for socialism with share-holders or fascism

in order to attempt to hold onto control. I do agree that both the best of times and worst of times are just ahead of us. It is very easy to get caught up in the gloom of having been purposely under-informed by the leaders we trust and awakening to reality. The convulsions you describe present a tremendous opportunity to inform others so there are ever more people prepared to meet the challenges ahead and embrace a post fiat world.

What are your predictions

for the next two years Republicae?

Republicae's picture

Do you really want to know?

Do you really want to know? My feelings are that the underlying system of debt, that supports absolutely everything, including our "money", is coming to an end. We have been operating under a total DEBT STANDARD for almost 40 years, that is the general life-span of a total fiat monetary system. What we are seeing now is not the end, not even if the stupidity of Congress approved this "bailout", this is the beginning of the systemic destruction of our monetary system. During the next two years we will see a chain reaction of failures, sector after sector within the economy will weaken, profitability within various sectors will be consumed, "capital", if you can call it that, will be drained, siphoned off and there will be a deepening hybrid-depression with overall monetary inflationary pressures combined with deflationary influences in various sectors. It will be the ultimate roller-coaster with false economic signals distorting decisions, both of government and businesses. That is just be beginning, this hybrid-depression is the beginning, its not the end, the end comes when the complete break-down of the fiat monetary system destroys everything we now know as society.

A couple of years ago there was a hint of a societal destruction through peak-oil, peak-oil will not hold a candle to peak-debt.

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Republicae

Yes, I did want to know - We are bombarded with so much information...and opinions...that it is hard to discern what is the most accurate. I know very little about economics...that's not my area of expertise. Like many Americans I live somewhat paycheck to paycheck with a small savings account or retirement fund. I know little of Wall Street, the banking industry, or even how our very complex financial system works. Crash courses are a little shaky ! Therefore, I am certainly in no position to agree or argue any specific points with you. However, I am very concerned and sincerely interested in hearing from those with financial knowledge who do observe and take an active role in informing others. That's one of the reasons I frequent DP. Trying to find a reliable, trustworthy site to get the information I need to make informed decisions myself. Thanks for your reply and sharing your knowledge with others.

Republicae's picture

I understand, here are a few

I understand, here are a few of my previous post that may help you or at least give you a direction to head in on your search for answers:

http://www.dailypaul.com/node/57788

http://www.dailypaul.com/node/60534

http://www.dailypaul.com/node/58713

http://www.dailypaul.com/node/58185

http://www.dailypaul.com/node/62907

http://www.dailypaul.com/node/58772

http://www.dailypaul.com/node/62659

Rags make Paper; Paper makes Money; Money makes Banks;Banks make Loans; Loans make Beggars; Beggars make Rags

http://militantjeffersonian.com

"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun