I can't post the whole article.

 

The pent up inventory is getting ready to unleash in 2010. The gigantic bet made by the bankers and Wall Street was that somehow by allowing banks to fudge numbers since the crisis started that housing would find its footing and the market would stabilize. Sweep the collapse under the bailout rug. This perceived grounding was then going to allow banks to unload these properties and avoid realizing institutional ending losses. Yet 21 months into this painful recession and trillions handed out to the banking sector, housing prices are not spiking. The tiny uptick in home prices is a mirage brought on by three major factors. First, the $8,000 tax credit lured additional home buyers into the market. Next banks have held back on the shadow inventory thus artificially lowering the supply of homes on the market. Finally, the U.S. Treasury and Federal Reserve have artificially kept mortgage rates low by buying up some $1.25 trillion in mortgage backed securities. All this and housing prices have barely stabilized in some regions while foreclosures are at record breaking heights.

 

Yet the problem with operating in a crony banking system is that the tainted few are merely looking out for their own gain as they always do. They tried convincing the public that what they were doing was for the good of the average American yet behind the scenes, have shot down cram down legislation at every turn and have their hand out for every bailout. In reality, the current loan modifications are a joke and recent reports by the OCC and OTS show massive amounts of re-default rates.

 

NPR had a show last week discussing strategic defaults. A strategic default is when someone purposely stops paying even though they have the money to make the payment. This is in contrast to say a job loss default where the person has run out of cash. It was a fascinating show. Many people had little issue with defaulting on their home. Many argued that banks received their bailout so why shouldn’t they? We can thank the government for creating one enormous moral hazard. How can you argue with the borrower’s logic? However there is a problem. The taxpayer is now on the hook for nearly every major bank and let us be honest, the bulk of the mortgages are pumped out by the too big to fail. The government is the mortgage market now. So these strategic defaults are going to harm the average taxpayer even more.

 

To be honest, I have no problem with people walking away from their mortgage. In a sustainable environment, the punishment to this borrower will be a battered credit score and the inability to buy a home for many years. Yet the government in their infinite wisdom combined with Wall Street felt that by co-opting the banks with taxpayer money, somehow the prudent majority was going to be supportive of all these government handouts to the crony banking system. It is no surprise that people are downright dissatisfied with how things are being operated.

 

I love how some pundits argue that the shadow inventory will cause no problem on the markets or even, that it doesn’t exist. Keep in mind that we have never had a housing market like this. The Great Depression had a major housing downturn but mortgages were nothing like they are today. At least then, you knew who owned your mortgage. They didn’t have option ARM or toxic nuclear waste Alt-A loans. In fact, many of the prime loans are going bad because people also went HELOC crazy and yanked out equity actually believing their home was worth the inflated price. Let us look at a real case study of shadow inventory. I will use a bigger sample size here and look at Los Angeles:

 

http://www.doctorhousingbubble.com/shadow-inventory-case-study-inventory-in-the-shadows-twice-as-big-as-normal-resale-inventory-in-los-angeles-and-not-on-the-mls-or-for-public-viewing-foreclosures-and-distress-properties-clogging-t/

I think it's clear by now we're headed for a huge double-dip recession that will rival the Great Depression.

 

And I'm frightened by the policies the government will enact to "combat" it. They'll claim their corporate welfare programs weren't big enough. They'll enact tariffs... an entire generation won't get to retire. Unemployment will remain high for many years. This is going to get really bad.

 

But when it's all over, and the economy stumbles out of this thorny brush, our children will learn in public schools that it was due only to the incredible foresight and intelligence of a few charismatic politicians.