07/17/10 Baltimore, Maryland — Has there been significant deleveraging in the US housing market? Not really. Instead, with already $7 trillion in home equity lost, mortgages have come down only $270 billion. It’s a significant discrepancy that’s going to have to come into alignment somehow.
Jesse’s Café Américain explains:
“This debt must be resolved. There are two major ways to do it: repayment and default.
“Repayment is probably a fantasy, if not beating a dead horse. The homeowners do not have the money with which to pay the loans given the current state of employment and wage stagnation, and the mortgages are for the most part on houses whose value is significantly under water compared to the debt, as in ‘ just mail in the keys.’
“Straight up default, writing off the debt even through foreclosure, is also probably out of the question, because it would essentially vaporize the balance sheet of the US banking system which is also insolvent, to a greater degree than most understand, and if they understand it, would admit.”
This is while of “986 bank holding companies in the US, 980 [banks] lost money last year. The lucky six were the TBTF banks on major government subsidy.” To support his thinking, Jesse goes on to cite an Automatic Earth piece, Is It Time to Storm the Bastille Again:
“That is, what Americans’ homes are worth, their equity, decreased by $7 trillion — from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that’s right: US homeowners lost more, by a factor of 26, than they ‘gained’ through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333.”
The government bailouts, already a failed experiment, didn’t help the vast majority of banks get profitable and also aren’t going to help homeowners pay mortgages. This debt isn’t looking to be liquidated without a prolonged period of tough times. You can read more details in Jesse’s Café Américain’s coverage of unresolved debt in the US financial system.
Best,
Rocky Vega,
The Daily Reckoning
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
GO TO HELL GOVERNMENT SACHS! Start the revolution and destroy the Washington/Wall Street criminal cabal led by Obama bin Laden.
did i hear the fed say that this downtick was to last 6 years with low, low, low interest raTES AND INCOME GENERATION ABILITY OF THE DOLLAR……JUST EXACTLY FITTING INTO THE SECULAR BEAR THEORY STARTING IN YEAR 2000
THUS DEMOGRAPHICS AND SUPPLY AND DEMAND ECONOMIC THEORY…..should have seen it coming and had more money…..