Saturday, October 25, 2008

Underwater mortgages threaten economy

Underwater mortgages are a growing danger to the U.S. economy:
As the financial crisis hits Main Street America, nearly one in six U.S. homeowners are finding themselves [underwater on their mortgages], threatening the U.S. economy with a new wave of foreclosures and bankruptcies.

About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody's ...

If ... these homeowners go into foreclosure, it would add to the oversupply of homes, delay a recovery in the housing market, and add to pressure on banks. ...

In a slowing economy, it doesn't take much to push an underwater mortgage into default.

"When you're under water and you have some kind of hit to your income or some kind of unintended expense, that's when you default. And so now we've got this noxious mix of millions of people under water and quickly rising unemployment," Zandi said. ...

Economists like Zandi worry that the underlying housing crisis could eventually prove much more costly to the U.S. taxpayer than the $700 billion the U.S. government has pledged to recapitalize banks and buy up distressed debt from financial institutions.

"The government is going to have to start filling this negative equity hole and that's just going to be a direct cost to taxpayers," Zandi said. "This is going to be the really costly part, I think, for taxpayers." ...

Nationwide, for those who purchased U.S. homes since the beginning of 2003, nearly one in three now have negative equity.


  1. quote from article: "But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them."


    SO WE HAVE GOVERNMENT BAILOUT MONEY BEING USED TO PAY PRIVATE SECTOR EXECUTIVE SALARIES?!?!? All the banks should be on the government pay scale!!!! If they don't like it, fine then let all those bankers quit! Convert those banking jobs to government civil servant jobs and I'll certainly apply for one of those high level jobs.

  2. What a load of bull. We have to bailout those who bought irresponsibly and are punished if we DIDN'T buy during this period?!?!?

    Guess that's Obama's "spreading the wealth around" shtick for ya.

  3. Right, I sure am disappointed in what a bad president Obama has been these past eight years.

  4. "Guess that's Obama's "spreading the wealth around" shtick for ya."

    How delusional do you need to be in order to see the world this way?! Whoa, that's one fucked up point of view.

    When president Obama started that war with Japan in 1941, that was pretty fucked up too.

  5. Hi I’m “Bob the Contractor”, a Mid West general Construction Builder/ remodeler. I do own my own business, not trying to buy one, I do pay taxes not thinking about it, and I do have employees. I’m not a TV AD. So here are my thoughts on “Joe the Plumber”.
    If I can get back to making an actual profit of 250,000.00 per year then pay a little more, then do it. We as Americans do know that it does take those in a higher tax bracket to make up for those in a lower tax bracket.” Joe, in other words if you don’t want to pay the taxes for income “you made” Profit Joe, then don’t go into business. To say that I will lose employees if I have to pay on income profit, is nonsense, because in dollars to dollars talk, profit, Actual of 250K means that my company as a whole did much better then 250k that s being kicked around.
    In other words in actual profit “Joe” “not Gross profit”.
    Also “Joe” there is less than 1.4% of small businesses actually make this type of money. By the time they figure overhead, you know like:
    Employee wages
    Gas, Vehicle Upkeep
    Workmans Comp.
    In other words Joe. Before you buy the business from your employer, you better ask them to open there books. Because if all he is making gross is between 250 > 280 gross, you really are not going anywhere other then buying a 1 or 2 man operation. Therefore you would not see this HUGE Increase that “Mr. McCain is discussing.
    If you want worry. Worry about this:
    700 Billion Bailout and Banks and Card companies take small business owners and Jack there interest rates into double digits. And tell the small business owner that this is because of their credit scores. In the meantime those in Washington parade around like they did something for the American business owner.
    Read my thoughts on this Below:
    To : Candidates Obama & McCain Cc: Wash. DC 10/18/08
    From: A Small Business Owner
    We continue to watch an economy in turmoil watch people worry about today not the tomorrows. We continue to get political bantering and talking heads. My question and in some instances pointed observations from one 56year old business owner that is sinking and not finding any options anywhere. Where is the help for our families and employees.Small businesses grew this nation. Yet we hear big business scenario. Big companies file bankruptcy, we allow small business to be lost in the paper mill and go bankrupt and call it a shame or (the business owner had no business ethics). We allow companies to move and hide under shield of protection when small business can’t. We our called bad business recipients because we can’t get loans to help bolster our situation until the economy frees itself up. Large Corp get funding, based on what? CEO’s receive bonuses, small business gets denials for credit because there seen as a credit risk. And banks will no longer lend to. Credit card companies are in ways vultures, giving good rates to business to start, then economy conditions change, these companies sent interest rates from 7.5 > 9%, to 17>21% ,putting more burden on employers trying to keep employees working. Ask Advanta, Wells Fargo, and others the logic in high interest? Higher interest rates have larger payments on a fractured system that we are dealing with. HIGH interest rates forces bankruptcy, not the economy. We like any business our trying to make ends meet, many of us our profitable enterprises in the red based on payment structures that have us scrambling. Projects went awry, were trying to recapture losses. WHICH is part of business. We suffer losses, startups suffer greatly. Businesses can grow , but not the funds to continue. Banks need to lower rates not say no! Banks say you’re not high enough on their standard. When pushed harder you learn if you had land, plant, big equipment we could loan you the money. We understand, we are truly in remarkable times you do not have equipment & land because you cannot get loans to keep going. Small business delivered back the following:Small businesses are job creators. small businesses represent 99.7 percent of all firms, they create more than half of the private non-farm gross domestic product, and they create 60 to 80 percent of the net new jobs. The latest data also show that in 2002:
    women owned 6,492,795 firms; Blacks owned 1,197,988 firms,Hispanics owned 1,574,159 firms;Asians owned 1,105,329 firms;American Indians and Alaskan Natives owned 206,125 firms.In 2004, there was strong growth of 7.3 percent in proprietor's income a partial measure of small business income. Business bankruptcies decreased by 2.1 percent and self-employment increased by 2.2 percent. This and other data for each state and territory are available in individual economic profiles on the Office of Advocacy website at
    Source: Small Business Drives U.S. Economy•Small businesses represent 99.7 percent of all employer firms.•Over the past decade, small business net job creation fluctuated between 60 and 80 percent.•Small businesses generate more than 50 percent of the nonfarm private gross domestic product (GDP).•Two-thirds of new employer establishments survive at least two years after start-up, and 44 percent survive at least four years.•Small businesses employ half of all private sector employees.•Very small firms with fewer than 20 employees spend 45 percent more per employee than the largest firms to comply with federal regulations.•Minorities own 4.1 million firms that generate $694.1 billion in revenues and employ 4.8 million workers.•Women own 6.5 million businesses that generate $950.6 billion in revenues, and employ 7.2 million workers.•In 2004, an estimated 580,900 employer firms opened while an estimated 576,200 closed. For more information and a complete copy of the 2005 Small Business FAQ, visit the Office of Advocacy website at
    Source: NEWSRELEASE Contact: John McDowell, (202) 205-6941
    Number: 05-46 ADVO
    Did I forget to tell you that GM which is bleeding red can get billions in loans on concept cars and property that if they were to go under, would sit empty and eventually fall apart. Job loss age is always shared with big name companies. But if you dig deeper and help the small business you also can generate income, you can generate those that will go out and spend. Maybe I’ve simplified this too much for some.Tax accountants everywhere will have their hair bristle. However what about those companies that were laughed at yet made it. And how did that happen? Because are banking system listened to the concept, listen to the business owner, that yes may have been bleeding red but finally got it! That company made money supported the industry they were in and had employees, employees spent money on items then those companies employees went and bought other items and soon the economy started to roll very slowly out of the train station, to simplified for our college and political brilliant minds still? I truly hope not!
    We give billions to banks and they do nothing with the money. Oh YES! The stock holders. The 1% of the stock holders in the companies that actually push the buttons, telling boards to not do anything to hurt the balance sheet more. So where does the money in the rescue plan go? Not out on the street that’s for sure but sits to make the sheets for the stock holders look good. When will government look at these numbers, banking partners will not lend to SMALL BUSSINESS? Yet small business will drive the economy. Companies need to roll back prices stop trying to make ground up in chunks. Stock Holders have to wise up and allow the economy to grow again in small pace rather then this quick jump start that everyone is touting.

  6. "When president Obama started that war with Japan in 1941, that was pretty fucked up too."

    And then when he rounded up the Japanese-Americans and put them into camps - tres uncool.