Its All About Housing

As we watch this house of cards come tumbling down, its very easy to get sidetracked from focusing on what caused this economic disaster.

You need to constantly remind yourself that "It's all about housing". I say this because:

Our economic nightmare was triggered by housing and will not be over until housing stabilizes!

Folks, I can't stress this enough! Housing prices MUST completely collapse and fall back to affordable levels or this nightmare will live on. We will all sit here and suffer as long as these assets continue to be propped up by the government.

There is only one way for this housing price adjustment to occur: All of the toxic assets on the banks balance sheets must be ripped apart and sold for market value(most likely pennies on the dollar).

The problem we have here of course is the banks will not allow this inventory to clear at realistic prices because they know it will put them out of business!

I say TOUGH ****! The government needs to grow a pair and force these banks to sell their assets at market prices and take their losses! THEY ARE RISKING AN ECONOMIC COLLAPSE IF THEY DON'T DO SO! If a bank goes under as a result then so be it. The Feds can then guarantee the deposits of the insolvent banks, and allow the FDIC to do its work of merging them with stronger banks.

Once this is achieved, banks will lend again because they will not be sitting on a pile of crap that's the equivalent of a 50lb weight tied to a swimmers ankle. Housing prices will then be allowed to come down to around 3 times income which is where they NEED to be in order to sell. This is how you recover from a meltdown.

Continuing to attempt to sell homes at prices no one can afford will only guarantee failure. Creating bad lending products in an attempt to keep housing inflated(which we are doing now) does nothing but create future problems and "kick the can" a little further down the road.

Unfortunately, as you can see below, we continue to ignore the 100lb gorilla in the room.

Take a look at this short video around jumbo loans from CNBC's David Faber(one of the few guys on there who has a clue):

My Take

The numbers here are flat out frightening. Keep in mind that this massive $8 billion pool of jumbo loans that was downgraded in this piece was originated from 2002-2004 which was before the housing bubble really got going.

You need to ask yourself: If these pools of these loans are going bad, what in the hell is going to happen to the pools of loans that were guaranteed from 2004-2006 when the housing bubble turned into a TOTAL FEEDING FRENZY? Can you say nightmare?

Folks, honestly, sometimes I just wanna hide under a chair when I read this stuff.

What's even uglier are the 60+ day delinquency rates on jumbo prime and conforming prime loans. The jumbo delinquency rates have jumped a staggering 600% from 1% up to nearly 6% since 2007. Conforming loan delinquency rates have tripled from 1+% to over 3%.

PEOPLE, THESE ARE PRIME LOANS!!! These are your BEST borrowers with the HIGHEST credit scores.

Why is this happening? BECAUSE THEY CAN'T AFFORD THE HOUSE!

Its that simple! The home buyers with low incomes bought cheap houses that they couldn't afford. The richer with larger incomes bought jumbo houses that they couldn't afford.

As a result, they are defaulting at a rate that no bank could have ever imagined! Inventories for houses over 750k(which is not uncommon in the bubble areas) has now reached almost 4 years! What a joke. Ths doesn't even include the retards who took their house off the MLS thinking that the market will come back. HA! Good Luck! SOLD TO YOU!!!!!

Anyone thinking that this economy will recover without solving the housing affordability issue is smoking dope. Most ofhese jumbo houses will never sell until they collapse 50% or more in value. No one can afford a loan let alone a jumbo loan these days.

I mean Christ, landlords can't even fill rentals these days:

"July 8 (Bloomberg) -- U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market.Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today.

The last time landlords had so much empty space was in 1987, when vacancies reached 7.6 percent as the Standard & Poor’s 500 Index plummeted 23 percent in the last three months of that year."

A 22 year highs folks! Why is this occuring? Because no one is working and families are being forced to move in with one another. Who on earth do they think is going to buy these McMansions when no one even wants or can afford to rent?

Folks, watching this country be torn apart by such stupidity drives me absolutely insane!

Bottom Line:

The fraud needs to stop right now! Right this very second before its too late.

There are rumors now swirling around out there that Goldman was able to read trading data before the trades were committed. Zero Hedge, The Market Ticker, and The Daily Kos(Not a fan of radical left wing idiots but the article is important) are all over this.

If this is true then run as fast as you can from the market until it is trading with full transparency. The word is traders on the floor have completely gone to the sidelines as a result of the crazy trading we have seen over the last few months. What does that tell you if even they don't wanna play? Look at the pathetic trading volumes. It renforces whats being talked about on the trading floors.

The pricing action has made no sense to me for weeks so I am not at all surprised by the Goldman accusation. In fact, it actually makes a lot of things make sense if this is true. I find it interesting that the market has sold off violently since these allegations rose. Perhaps Goldman realized they were busted and stopped the games? Kudos to Zero Hedge for getting the ball rolling on this one.

Goldman needs go the way of Enron if there is any truth to this accusation. It appears this" rogue trader" who supposedly "stole" their trading platform may have actually been the guy that taught Goldman how to do this. If any of this turns out to be true you this will go down as the largest fraud ever seen in the history of Wall St.

Folks, just when you think there is no way this fraud can get any worse: Somehow, Someway, Wall St finds a way to outdo itself. Unbelievable.