Aug 20, 2007
For over 10 years, housing prices across the country were pushed up at a record pace. Government officials and media “experts” all said that the higher prices were an indication of economic health and general prosperity – even though wages and salaries were stagnating and declining.
In reality, the increasing home prices only masked a worsening economic crisis. Instead of investing profits in production, most of the biggest companies in the country, from GM and GE, to the biggest banks, financial and insurance companies, simply fed a record housing bubble. As prices rose, such companies made enormous profits by financing bigger and bigger mortgages. Then they made even more profits by selling and buying and again selling those mortgages each time at a higher price – that is, speculating. Many executives running this con game pulled in bonuses of hundreds of millions and even a billion dollars – in just one year!
In fact, it was all a big pyramid scheme, and it depended on a constant supply of fresh, new homeowners to keep from collapsing. But over a few years, the housing market became saturated. Companies began to suck in those who could least afford the outrageously high housing prices on the market. The companies roped them in by selling so-called “sub-prime” mortgages that they advertised as an “easy and affordable” way to own a home.
In fact, the mortgages were really like ticking time bombs, delayed to go off after a couple of years, as the “low” initial payments reset at 50% or even 100% higher levels. Often, people weren’t told what was in the fine print. And if they did find out, companies made all kinds of assurances that mortgages could always be refinanced because of rising housing prices.
But nothing of the sort happened. Over the last year, housing prices began to fall – just as the first wave of sub-prime mortgages began to have their rates “reset.” This left many “subprime” homeowners with no options but to default.
The vast majority of people losing their homes today are still working; they could work 24 hours a day, and still not make the new payments.
This year, defaults on mortgages are expected to be twice as high as last year’s, with close to a million households expected to lose their homes. A much higher number of defaults and foreclosures are expected next year, as even more subprime mortgages reset. And these defaults can be only the leading edge of a much bigger, full-fledged real estate bust, leaving countless millions at risk – a gathering human catastrophe.
Yet no government agency has lifted a finger to pull together an immediate rescue, and a plan to forestall what could very well happen to all these people thrown out of their homes.
No. The government is moving to rescue the very companies that put together the pyramid scheme and profited so greatly. The Federal Reserve has begun to inject massive amounts of cash into the financial system to prop them up.
In other words, the government is taking the workers’ taxpayer money to reward the very companies that victimized so many people – so these companies can get back on their feet and do it all over again.
The banks and their government should be tossed out with the garbage.