By Mike Colpitts
It finally hit the fan. The nation’s largest investment banks and mortgage companies developed the new financial trading instruments that triggered the credit crisis on Wall Street, and now the long expected financial melt down has finally entered its final stages.
A few minutes before the New York Stock Exchange closed for trading at 4 p.m. last Friday afternoon we walked the most famous street in finance Wall Street. Anyone with any sort of feeling or sense noticed the heaviness in the air surrounding Wall Street. There was no energy. It felt as though a funeral was about to take place.
Across from the NYSE two young people wore white ghost masks, hiding their identities. Around their necks hung small paper placards which simply read, “Greed Kills.” It was a protest against the titans on Wall Street who had made fortunes as a result of other people’s pain.
Real estate markets across the country have been feeling the pain surrounding the Wall Street melt down for more than a year. It’s been getting harder and harder to get a mortgage. Housing prices in the over-whelming majority of markets have been falling at or near record rates.
The most powerful financial capital in the world had become unhitched. Trading would close down for the day, and then Congress would fail the country again on Monday, failing to agree on a rescue bailout plan for the financial mess.
Americans are overwhelmingly against a bailout, despite the country facing the worst financial crisis since the Great Depression, as forecast by Housing Predictor more than a year earlier. The bailout is seen as a bailout of the financial markets by the majority of Americans when it in fact must be a bailout of Main Street and have provisions to cover increasing foreclosures, defaults and mortgage securities in order to be successful in the long term.
The bailout proposes $700-billion in aid for the nation’s economy, but could in reality climb much higher before the mess is fixed. The U.S. Savings and Loan Fraud Crisis of 1989 cost every American man, woman and child $10,000, according to government figures. And this bailout is much worse and much more widespread.
The economic crisis has accelerated at rapid rate, and without a government bailout hundreds of businesses will go bankrupt or fail, according to Housing Predictor analysts. Some will fail because of their inability to borrow money required to meet business expenses.
Foreclosures have amounted to more than 3-million since the crisis began, and are projected by Housing Predictor to total 6.4-million through 2011, which equates to a much higher tab for tax-payers.
Former President Bill Clinton may understand the depths of the crisis better than anyone else. It was after all Clinton’s administration which lifted safeguards that separated commercial banking from Wall Street’s aggressive investors, who went on a wild buying spree of these new instruments to make record profits before the pool of securities traded on Wall Street collapsed.
The old rules came out of Franklin Roosevelt’s new deal, which provided new mortgages to those threatened with foreclosure at government expense. Provisions protected average homeowners and savings account holders from risk takers that ruled the investment banking world, whose only interest was to make more money for them selves. America is in need of a similar plan today before more financial harm occurs, further damaging the national economy.
Clinton says that for every foreclosure the overall economy is hurt by $225,000. This crisis has taken on a massive complexion with record foreclosures. The derivatives or instruments traded on Wall Street were as high as $30 to $1, which mean the crisis could hit American tax payers for $2-trillion.
Clinton knows more than a few things about the economy and real estate. He and Hillary have been major real estate investors for years. “I’m still optimistic,” said Clinton. “We still have a way out of this thing.”