The mortgage wipeout could result in a $2 trillion cutback in lending and have dramatic implications for the U.S. economy, according to Wall Street investment bank Goldman Sachs.
Wall Street banks and brokerages face pain on two fronts. They hold home loans, as well as securities backed by mortgages. Losses on these holdings are expected to deepen as falling housing prices trigger more defaults.
3 comments:
Huh? More Disaster Journalism? We expect it from Wall Street, but Wall Street's 'economy' is not "the U.S. economy". Don't you find "trigger more defaults" somewhat misleading? It refers to the Wall Street holdings, but it echoes the recent 'defaults' we've heard about by the homeowners. Wouldn't "falling housing prices" tend to make a buyer's market?
Large developers of those 1,000+ single-family home communities (you can see them on Google Earth in the Rocky Mountain and Midwestern states) radiating from Wal-Marts might 'default' because they won't make the (overvalued) margin they contracted for. Tsk. But those empty houses will still be sellable and buyable.
When the 1970s' overvalued U.S. money-based economy was corrected, British money was invested in the U.S. economy; a lot of U.S. real estate was 'owned' by British firms. A decade later, Japanese companies owned a lot of it.
Today, China owns a lot of U.S. cybercurrency, as do insurance companies and telecommunications companies -- examples of 'unreal' wealth, wholly independent of 'material product' and brick and mortar. There is room for correction and adjustment in those huge wealth sectors because they don't buy, sell, or maintain a material 'product'. Remember when you paid $1.00 a minute for a long-distance phone call that cost Ma Bell $.06?
In those double-digit inflation years, U.S. citizens were converted into U.S. consumers: dumb citizens became smart consumers. They (we) were bamboozled into 'smart' getting and spending (Whip Inflation Now). We didn't learn how to make do with less. We were given two choices of window-cleaning products, the name brand in economy-size (huh? they were bigger) pump bottles or the generic product, even though plain tap water or vinegar and water with crumpled newspaper, instead of the super picker upper, cleans glass best (and the squeaks will make your dog sing!). I think the biggest growth industry then was the store-coupon printing industry.
The real dire was cast in 1980 or 1981 when a Chicago based Public Relations firm contracted with a supermarket chain and 1,000 consumers in Darien, Connecticut, who subscribed to cable TV. The consumers agreed to shop at those stores. The stores had optical scan registers installed. Dedicated commercials (along with regular ones) were shown to those 1,000 consumers (who had been informed of the entire 'survey' process, and knew that they would be fed dedicated ads, but they didn't know which were dedicated for only them). The PR firm got the purchase receipts, analyzed the effectiveness of the ads along with the buying 'preferences', the stores stocked their shelves accordingly, and voila: Based on those 1,000 consumers, the entire U.S. population's 'preferences' were fixed and mandated. 'Choice' disappeared. Only one or two sizes of a product (both very large) became the rule, forever.
It will be dire only if China won't invest its double-digit GNP growth in the U.S. economy, and if the rich oil-producing states won't invest more than they already have.
Let's pretend that all the U of Cal campuses go belly up and won't be able to matriculate any students any more. Does anyone think that the Asian and Middle Eastern countries wouldn't bail them out, so they can continue to educate their young populations at those schools? It's enlightened self-interest, after all, and for many things, the U.S. is still the only show in town.
As a Realtor, I can tell you that it's a freakin' bloodbath out there for homesellers & recently mortgaged home-owners.
It's amazing to me how many people have yet to grasp the significance of what has been happening on Wall Street in the last few months. When they do, it's hard to tell what will happen.
-from a hopefully not too useless poster
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