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Sadly, recent events in Washington suggest that this optimism of some kind of meaningful rescue plan for Main Street may have been misplaced and that politicians, never the most economically intelligent of mankind, may be working towards constructing the Great Depression - Part II.
The reality now is that we are heading into a major recession and the largest destruction of wealth that this nation as ever encountered. Much greater than the depression of 1929.
The new sad fact facing us all is that our new mortgage lender (FHA) and quite possibly, property manager (Henry Paulson), will be controlled by none other than Uncle Sam. Can anyone say, “Uncle Sam Realty and Loans Inc?”
Over the last three years, for example, big banks and brokerage firms almost doubled the amount of residential loans they issued, going to $1.1 trillion last year from $586 billion in 2003.
Most of these loans were packaged into collateralized debt obligations and sold to pension funds, hedge funds, banks and insurance companies. 81 percent of the $249 billion in collateralized debt obligation pools in 2005 consisted of residential mortgage products.
Collateralized debt obligations are made up of different segments — known as tranches — based on credit quality. Because buyers of these securities were looking for yields, subprime loans make up a large portion of most collateralized debt obligations.
Essentially the government is bailing out Wall Street and the holders of MBS and to become the direct market maker and guarantor of mortgages to consumers. These holders are everyone from Uncle Bob with a 401k at Northrop and you buddy John who works for the LAPD with a 401k and house in the suburbs.
When these MBS’s fail and many will, these MBS’s which are actually tied to mortgage and real estate notes will now be owned by the US Government. To put this in layman’s terms, they will then own the real estate that was once a MBS tied to your mortgage note.
Restoring confidence on Wall Street by bailing them out without addressing Main Street will destroy the Middle Class and the American Dream.
Uncle Sam will make Ted Turner look like a small time land flipper by the time they come into their full real estate glory. America’s real estate and mortgage industries will be dominated by the government and no one will ever come close, ever again.
Now, with our taxpayer money, our government plans to buy this toxic paper and stabilize Wall Street while the people on Main Street will have their homes foreclosed on and their lives in shambles. Meanwhile, Uncle Sam will gobble up your home as you leave through the foreclosure exit door and then place it on the market and offer a great FHA loan to go with it!
The cost of this bail out will eliminate the middle class and the American homeowner. My thoughts are that this will further spread the gap and will this be the monumental divider between the rich and the poor.
It will be 1929 all over again and this time it will be a deep, deep depression for us all and quite possibly the world.
Uncle Sam Realty and Loans Inc. Taking over a RE/MAX near you!
