Like A Wave Caught On The Sand....

Riiiiiiiiiight:

TOKYO (Reuters) - U.S. Treasury Secretary Henry Paulson said on Tuesday that a weakened housing market will not have a major impact on the U.S. financial sector, which he described as quite healthy.

In a roundtable session with reporters during a visit to Tokyo, Paulson said the housing downturn had had some impact on certain types of mortgages but he did not see it as a major problem.

"Some of the credit issues are there, but they're largely contained," Paulson said.

Yea. *AHEM*

NEW YORK - Mounting concerns on Wall Street that mortgage lenders might be hurt by increasing defaults and delinquencies sent investors fleeing Monday from some of the biggest names in the industry.

The meltdown among lenders that specialize in home loans to people with weak credit, known in the industry as subprime lenders, again ravaged stock prices. Financial institutions from Britain's HSBC Holdings PLC to subprime leader Countrywide Financial Corp. sank amid reports of strained portfolios as loans went bad.

Some 31 sub-prime lenders have gone into technical default since January 1st of this year, which is essentially a run on the bank to frame it (simplistically) in terms we might comprehend.

The housing boom of the nineties was largely financed by these firms, like Countrywide and Ditech, who would lend first and second mortgage money at sub-prime adjustable rate mortgages. Most of these mortgage promised that, for the first five years, you would pay a very low introductory interest rate with no paydown of your principal. After five years, the rate would then be allowed to float to prime plus a premium, based on your credit history, payment record and current financial situation. Also, you'd have to start making payments against the principal.

All this made a lot of sense when the loans were 2.5% and the prime was 3.25%, and the housing market was robust. Over the course of the Bush administration, however, prime lending rates have nearly doubled, meaning that folks who took out those mortgages will now face almost a thousand dollars more each month in payments than they had last year. Too, there's no way to sell the house for a profit, since the housing market has stalled and as more of these properties go into default, will drop further, faster, and harder. Supply and demand, you see.

You might think this means nothing to you: after all, you have credit cards, maybe you own your own house but you have a regular mortgage and a good credit rating...you'll be fine.

And likely, you will. Unless you have health issues, and need to take out a second mortgage because your insurance won't cover your therapy. Or you get divorced. Or your spouse dies. Or you lose your job.

Now think back to the passage of the new bankruptcy law, which makes it nearly impossible for you to get a clean slate anytime in your lifetime (although Donald Trump has a few loopholes to jump through).

See where this is going? Instead of providing for the American dream, what has happened over the past half dozen years or so is precisely the opposite: a shell game that is designed to fatten the wallets of the uberrich to the detriment of you and I.

We ought to be pissed as hell at these developments. These "bankers" were no better than crack dealers, except they didn't use a gun to keep you in line.

Just a lawyer.

Oh...and Paulson? He's just the delaying tactic until the smart money can get out of this very volatile and very dangerous market.

Related Story: Eclipses and Market Crashes

mortgages
sub-prime lenders
snarkasm, snarcasm, snarky
Bush