By Mike Colpitts
Suddenly and awkwardly America is losing the smoke tint blurring its rose-colored glasses. The great U.S.A. is suffering through the pain of the worst financial meltdown since the Great Depression, triggered by the shenanigans on Wall Street and the banking industry.
As millions more are thrown out of work, consumer goods are stock-piled in warehouses and millions of homeowners are evicted from their homes in foreclosure, the dint of a troubled economy is ringing home. The denial of a worsening economy has ceased. The real estate depression is enveloping the entire economy as Housing Predictor forecast.
Americans have lived with a prosperous economy for decades as fortunes were made in real estate and other financial sectors. But now it’s time to pay the piper for allowing the crooks and unethical types to control the marketplace. The rose-colored glasses that we as a country have been wearing turned out to be a case of smoke and mirrors played by bankers who made loans to millions of Americans they clearly shouldn’t have.
The mortgage bubble translated into liberal second lines of credit on homes, bigger credit card limits, zero down incentives and an all-time record high number of home mortgages. Few saved much money. The economy boomed. Businesses grew and most people prospered until the music came to a screeching halt. It’s the American dream to own a home. The problem lies in a very fundamental truth: Some people simply aren’t meant to be homeowners.
The worst foreclosure epidemic in history is taking on its own personality as bankers and mortgage companies’ work over time to handle the crisis. The problem inherent in the industry is that there just aren’t enough people schooled in the foreclosure process to keep up with the demanding pace.
The foreclosure epidemic has an ugly face. Bread winners are losing jobs. Adjustable rate mortgages are resetting and more and more homeowners are unable to afford the higher cost. The default rate has eclipsed 8%. As many as 1 in 8 Americans could eventually be impacted by the crisis unless government leaders intervene quickly.
For cultural reasons, Americans have had a sort of rose-colored glasses attitude about the economy as if to believe that things would always be good. Denial can be comforting. Historically, there are always ups and downs economically in real estate and every other financially related market. There is an inherent risk in believing that you’re too good or too big to fail. It’s why great athletes live in fear of losing, and why political candidates are never sure if they’ll win an election before the final results are tallied.
Somehow in the deepest corners, the fear of losing drives them to succeed. Perhaps President Barack Obama has what it takes to lead the charge. The road outside is getting rougher for most Americans to traverse. Maybe a $15,000 tax credit will aid the housing market.
America faces a new reality, a true reality of becoming a new type of democracy before it faces a possible demise as the $1-trillion government deficit grows. It all started in the housing markets where bankers knew they could make a bundle and then leave the collapse up to the government to solve. Only governments are big enough to make a difference in times like these. The New Deal produced jobs and improved the economy during the Franklin Roosevelt era so much so that he was re-elected to office for four terms.
Despite debate in Congress over the rescue plan, government leaders seem at a loss to find concrete solutions to the growing problems and President Obama says that if a plan is not passed quickly the nation will face a catastrophe. Obama is careful not to call it an economic depression. The second round of the government rescue plan may help some. The hemorrhaging would be helped if foreclosures are stopped.