Truth is stranger than fiction.
Write It Down Before It Falls Down
The housing bubble, represented by $12.04 trillion in homeowner home real estate valuation, and $10.757 trillion in original home mortgage and secondary housing market paper, is the biggest such bubble in history. It has more than doubled its size since 1995.
Signs now exist of an increase in mortgage problems: In the first quarter of 2002, more than 4.65% of mortgage loans nationwide were delinquent (30 days past due), the highest level in ten years, and the rate of mortgage defaults is rising. Fannie Mae has taken extraordinary measures to roll over troubled homeowners' mortgages, in order not to have the level of defaults show up. But the housing bubble cannot be sustained. The principal boundary condition is reality: Households with declining real standards of living, are not able to take out of their incomes what is necessary to pay rising home prices, and the demands of ever larger mortgages.
Lyndon LaRouche has proposed putting the financial system through Chapter 11 bankruptcy reorganization, as part of the process of a New Bretton Woods monetary system. That would include writing down a good part of the mass of U.S. housing paper. If that is not achieved, as mortgage defaults increase, beyond the ability of Fannie Mae and Greenspan to control them, the leverage that has been built into the housing market will come undone, with lightening de-leveraging of the entire market. Six trillion dollars of fictitious real estate value will deflate rapidly. Mortgage defaults will intensify, and millions of families will be devastated. The grand payoff is that the housing bubble's puncture will bring down consumer spending, and the U.S. financial system which Greenspan et al. built it to sustain.
Seriously interesting stuff DAK.
larouchepub.com |
