Credit-cruch and the Subprime Roadplan

I suggest the best option for dealing with the subprime mess is as follows: sell your real estate, rent for four years, develop a cash reserve, and get ready to buy once the reported 2 million subprime foreclosures come to roost by 2009. As Naomi Kline comments, disaster IPO's explode with each incident: it was openly voiced on NPR yesterday by a westcoast professor that the current Southern Cal wildfires will be a longterm net positive for the region, in terms of stimulus to construction demand. That's an insane way to view disaster! The subprime issue is another method through which big corporations are able to create a 'brushfire' of foreclosures: these leave the banking institutions sitting on ALL of that real estate on the cheap! They created the alternative products such as ARMS and interest only loans, or my favorite, the interest-only-ARM, at the exact time that rates cratered, thanks to Alan. People were not told the realities of the potential rate adjustments as they were eagerly offered these insane products. All the while, the banking giants know for a fact that many of the borrowers in recent years WOULD NOT be able to handle a 40% increase in monthly mortgage cost 3, 5, or 7 years down the road, given their incomes doubtlessly would not keep pace with such inflation. Those who took such loans should refinance immediately into longterm fixed rate loans (30 years), given rates are still historically low.

This shake-out is incredibly enormous, fiscally, with a major amount of wealth being centralized from the national many to the corporate few. Follow the money: a low or middle income family scrapes together 5% for a downpayment + closing costs. Over the past five years, that was enough to get yourself 'into a home', especially as per ads hawking developments in the poconos. That money could be around $10-15,000 if not more, of hard-earned labor. Now the banks did three things: they lowered the credit-worthiness of the lending standards, making more people eligible for more loans, stopped asking for wage documentation (W-4's, Bank Statements, these loans are called Paperless loans or document-free), and created interest-only ARMS (so that the buyer never pays down any more principal, only interest, for the first five years, then the rate adjusts up AND you have to pay principal + interest, so the payment skyrockets!!).

The other point here is that my figures don't take into account the millions of middle class Americans who awash in debt, who similarly face major financial hurdles as their mortgage payments catch up with them. There is a brilliant commercial that has a White guy in suburbia smiling on his lawnmower, viewing his two cars, big house, rolex, and CREDIT DEBT he can't even make his monthly payments on. That is the face of debt in this country, not only subprime borrowers.

If we assume that each family who faces subprime foreclosure has at least $5,000 of equity in their home, and multiply that times 2 million = $10,000,000,000 leaving the accounts of average americans who are left with destroyed credit, but now the bank is sitting on roughly $900 billion - $1.8 trillion in real estate nationally (assuming that $10mil in equity lost by the foreclosed-upon was equal to roughly 5-10% of the actual value of the property).

This transference of monies from the masses to the private is mirrored neatly in the colluded-dilapidation of our national power-grid and highway system. As is being seen, highways and toll roads are being leased off to private companies at the expense of the taxpayer. The national power grid has been shown to be in disrepair and arcane in technology. These set us up for more major disasters, through which private companies with get public dollars to rebuild. As my father says, they should call it "Weapons of Mass Construction". Let the grid fail, is the unspoken concensus among the powerful.

This privatization of public funds is immense. A report came out yesterday citing the probable costs of the Wars in Iraq and Afganistan at being ~$2.3 TRILLION! That is astonishing given Bush claimed the war would cost only $50mil. And where will all that money have been spent? $700 billion of taxpayer dollars will be interest payments alone.

And the beauty is this is all happening right in front of our eyes.