ONe of the oldest sayings regarding 'fixing downturns' in finance goes like this
It was as though re arranging the layout of the deck chairs on the Titanic would have avoided collision with the icebeg...
The Administration like all others before, is attmepting to re arrange the deck chairs, but the iceberg has been struck. Credit Card Defaults are high and rising. This means in turn that collaterailzed debt obligations using credit cards as their anchor are also defaulting. Even lowering home mortgage rates will not help people that have too much debt already, they still default. Experts still argue about home foreclosures. Ten states comprise 75% of foreclosures and four are the worst, CA, AZ, NV, and of course FL. There condos stand vacant and that makes owner fees impossibly high on those that have bought, and most of the buyers were apparently speculators. The current XHB homebuilder index is probably the best index of where housing really stands. But the point is that saddled with too much debt and then job losses, most creditors face a deck stacked against them.
I spent five years as a Chapter Seven US Dept Justice Bankruptcy Trustee. Most couples filinhg Chapter 7 had about $20,000 in unsecured, or credit card, debt. This was 1991-96. When one person lost his or her job, game over, all the payments could not be made. As unemployment rises we will see this across the country. No doubt Michigan is a picture of things to come in the referenced four states.
But to continue, the couples would generally affirm their house and the car payments. But now, with little or no or negative equity in the house, I would not expect that to be the case. Let the house go, and with zero down, we will make your payment, why not get a new car? California has offered incentives to buy only new homes in response to the home building lobby. Such stunts as zero down, we will make your payment, and credits for new homes, will only cause people to walk away from existing debt in bankruptcy. Why would a rational person make payments on the old house or car, as move in no first month rent apartments, new cars abound. No doubt todays' condos will be tomorrow's apartment.
Truly the deck chairs are being re arranged.
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