[jfelbab]

Let me see if I get this. Banks and mortgage lenders make the loans and based on their cash/debt ratio at the time keep or sell the notes. Many of these loans get sold to F&F. The original lender keeps, buys or sells the notes to maintain their debt ratio and cash on hand at proscribed levels. F&F would take these notes, bundle them and sell them to other banks and financial institutions who buy and sell them to maintain their debt ratio and cash ratio optimized. F&F assumed that the loans were properly examined and the banks assumed that when they were buying these loan packages from F&F that they were government backed and secure.

OK, now our government passes a regulation that orders the banks and lenders to offer loans to those that don't quite qualify (sub-prime). These banks and lenders are threatened that if they failed to do so they would be fined and or be put out of business. Ok, now the game changes. Now the banks and lenders know that they are lending money that they will likely never get back. You suddenly see the logic of selling certain of these "sub-prime" notes to F&F because they are the ones pressuring you to make these questionable loans in the first place. Fine, so now when the banks buy these bundles from F&F they assumed that the loans were backed by the US government. What they missed was that not only were they peddling the bad paper to the F&F, so was every other bank and lender and much of what they were buying was junk paper.

At the same time the lender was seeing housing values surging as the number of home buyers increased. Year after year home prices were increasing at a rapid pace. Some areas were seeing home values double in a year or two. So offering a NINJA loan on a home with the expected home value on the rise did not seem all that risky even if there were an occasional default.

Then one day the economy stumbled. Housing starts slumped, Home sales stagnated, jobs were going away. The housing market bubble had burst. Home values plummeted, often by as much as 50% of the original purchase price. Now the banks were seeing a problem. They had a lot of outstanding loans on the books on properties that were almost worthless as there were no buyers. Banks and lenders don't make good home owners. Foreclosures surged. Banks and lenders were selling these sub-prime notes to maintain their cash balance and F&F was buying. Home owners had huge mortgages on homes now worth half of what they paid for them. Many notes they held were ARM's and rates were surging through the roof. Time to sell, but it's almost impossible to sell when ten homes on your block are owned by those in the same financial bind, doing the same thing. Time to file for bankruptcy.

It is not too hard to see how an innocuous decision to "social engineer" our country sounded like a great thing. After all, who could be against home ownership for everyone? Who indeed? Bush, McCain, Greenspan, and a whole list of financial experts saw this very crisis and tried to stop the madness. Sad to say they were accused of racism and not caring about the poor in our country. After all, the dream of "home ownership" should belong to every American, right? Well the correct answer was "wrong". Not everyone should own a home as they can't all afford one, and here we are today with the government becoming the largest homeowner in the US. Tens of thousands of boarded up homes causing a blight in neighborhoods. Who is maintaining these foreclosed properties? They are an eyesore and becoming a scourge in many neighborhoods and Uncle Sam is the property owner.

Throwing money at the problem may make the market pick up for a while but the infection is spreading throughout thousands of cities around the US. Boarded up homes turning into drug houses, and crime scenes. Who is fixing the roof leak and the burst water pipe? Who is getting rid of the rodents, and caring for the home? How many homes are foreclosed in your city? We are seeing an excessive supply of homes and a lack of buyers. Will this $700B bailout change that? I think not. Clearly, we can't give loans to those that can't pay them back. Tried that and it didn't work. So where will the buyers of these foreclosed, boarded up homes come from? Lets look at the demographics. The buyers won't come from the baby boomers who are at an age where they will be downsizing and/or selling their homes. What about the younger group. Well, many are struggling with the job market and lack of credit worthiness caused by this crisis.

The only scenario that seems likely to me is that housing prices will continue to spiral down, possibly dramatically. Eventually it may reach a point where even those who couldn't afford a $200k home can now afford to buy that same home for $100k. If you can find people with decent jobs. But many of our jobs are leaving the US. Our tax structure for businesses in the US is extremely punitive, two to three times higher than in most other countries. Hard not to see why there is an exodus of jobs under this tax structure. So how do you fix that? Looks like only one candidate is talking about cutting the tax on businesses. The other is taking about increasing taxes on businesses. Your vote may just determine if our jobs go or stay.

Hang on the ride is about to start.