"The truth that makes men free is for the most part the truth which men prefer not to hear."
Dick Cavett
"It's a rare person who wants to hear what he doesn't want to hear."
Tallulah Bankhead
"It's the good girls who keep diaries; the bad girls never have the time."
Sophocles
"The keenest sorrow is to recognize ourselves as the sole cause of all our adversities."
Barry LePatner
"Good judgment comes from experience, and experience comes from bad judgment."
The housing market, in which I participate as my primary business, has fallen apart. In the space of seven days, Wells Fargo (subprime,) ABC and Fieldstone have all gone out of business. We've had loans caught up in the ABC failure.
AS AMERICAN HOME FALLS, TOP BANKS MAY TAKE A HIT
By David Weidner 4:22 PM ET Jul 31, 2007
NEW YORK (MarketWatch) -- Investors in American Home Mortgage Investment Corp. may not be the only casualties as that lender teeters on the brink of liquidation.
Wall Street banks may also be on the hook for billions of dollars in bad loans.
Barclays, UBS, Bear Stearns Cos. and Bank of America Corp. are among the banks that provided a combined $9.7 billion in loans to back American Home's mortgage underwriting, according to the company's quarterly filing with the Securities and Exchange Commission.
American home said Tuesday it has missed margin calls from its lenders and has hired advisers to consider strategic options including the liquidation of its assets. Its shares plunged $9.43 to close at $1.04. See full story.
Among the loans American Home disclosed: a $2 billion pre-purchase facility with the Real Estate Securities unit of UBS , a $2.0 billion credit facility from Bear Stearns , a $1.3 billion syndicated loan led by Bank of America , a $1 billion loan from Barclays , a $1.5 billion syndicated loan led by Calyon Securities and a $124 million loan from J.P. Morgan Chase & Co. .
It also has a $250 million credit facility with ABN Amro .
American Home said there are committed credit lines for the loans from Bank of America, J.P. Morgan Chase and Calyon Securities.
The company also said it has sale gestation facilities with UBS, Greenwich Capital Financial Products, Inc., Societe Generale, and Deutsche Bank .
Representatives from UBS, Bank of America and Barclays did not immediately return calls seeking comment. A spokeswoman for Bear Stearns declined comment. A spokesman for J.P. Morgan declined comment.
Officials from ABN Amro and Calyon Securities could not be reached.
Click here for a more socialist or progressive view of what's happening in the housing market.
After days like the last few, I begin to think that the world's coming to an end much sooner than anyone could have predicted, and that it's going to get ugly.
James Cramer of thestreet.com created a buzz by telling people who purchased homes in 2006, people who are facing price declines of 20% to 30%, to walk away from them and default on their loans. According to Cramer, better to default, and preserve your credit cards and your car so that you can still function in this society. Not surprisingly, along with giving such unsolicited advice, he expects a 100% default rate on adjustible rate mortgages financed from February 2006 to January 2007.
Cramer, a former hedge fund manager (before they became ubiquitous) who has recast himself as a media personality, is highly visible on television (MSNBC), radio (a weekend syndicated program) and the 'Net (thestreet.com), so a lot of people heard what he said. At first, I was shocked by his blunt candor, and the alarming consequences for home prices and home mortgage lenders, but there may an explanation that provides some insight into the severity of the current situation.
Note Cramer's emphasis upon preserving access to credit card debt and car financing. As I have noted in the more sinister context of neoliberalism in the lesser developed world, if you are unable to access credit to consume, you run the risk of becoming superfluous, because economic efficiencies created by technological advances have sharply reduced the need to employ people to participate in the production of commodities, as I have observed here (click on the comments to this post over at Democracy in America) and here.
Accordingly, one can interpret Cramer's advice as an indication of the urgency of preserving the ability of people to consume with the use of credit. Or, to put it slightly differently, if people attempt the impossible, and stay in their homes, paying sharply increased mortgage payments after their initial adjustible teaser rates expire, they will destroy their access to any form of credit, and lose the ability to purchase things like cars, designer clothes, personal computers and flat panel televisions. They will have been, in effect, forcibly separated from most of the markets of commodity consumption in a capitalist system, reduced to purchasing goods required for their basic needs and some simple (measured in terms of low cost and ready availability) entertainment items, such as DVDs and video games.
Cramer is implicitly sensitive to the peril, recall his specific remark that people should keep their cars. He is expressly concerned about the undeniable fact that it is hard to live in the US without a vehicle, but he is also worried that people will be unable to purchase cars in the future if they allow their credit to be completely eradicated. He is willing to sacrifice financial institutions, brokerage houses and investment funds involved in the speculative and fraudulent excesses of the housing bubble, so that the other sectors of the economy can survive.
Cramer's willingness to openly do so reveals the severity of the economic crisis before us, but it remains to be seen whether it is possible to surgically abandon the malefactors of the housing bubble successfully as he seems to believe. It all sounds like another manifestation of containment, a term recently used by government figures and financial experts to depreciate the significance of the threat, a term that has now been seized upon by critics as a universal short-hand form of ridicule.
