CHESSNOID

U.S. Treasury Secretary Henry Paulson announced his plan today but was still vague about who this will help or must have checked with his attorneys to figure out how to begin this process and avoid investors retaliating. Originally, I thought when he made his announcement that all borrowers with subprime mortgages would have their interest rates frozen aka teaser freezer. Today he said their are 4 types of subprime borrowers and the only one that would receive assistance would be geared toward those who can afford the mortgage now but won’t be able to after the adjustment. He basically said this would not help the majority of those affected. You can click on the link above to read about what the other 3 types of borrowers who will not be covered by the rescue plan.  I know he wants to avoid a recession and is trying, but he really needs a plan that attacks the problem and also accept that the business cycle is here to squeeze any excesses out of the economy.

So my enthusiasm has faded on his plan as well as most investors. The stock market shot up last week about 600 points in 2 days when he made his announcement. Today the investors are digesting this news but initially didn’t like what it really means. The problem still persists and the countdown on the mortgage rate interest rate resets continue to get closer for many homeowners every month. I think investors will be running for the door since this is not what they understood his bail out plan was suppose to be.

Today, I heard big news that one builder took the easy way out and just bit the bullet in one bit. Lennar dumped 11,000 new homes and sold them in one lot 40 cents on the dollar. That was a shocker and also bold of them. This sends the message that they don’t think the housing sector is going to improve anytime soon and they would rather sit it out than watch the value of all their assets continue to fall. 40 cents on the dollar seems cheap but the carrying costs on that must be staggering. I can only guess their company will be taking a loss and in turn will be laying off people to offset that move.

All the investors are expecting another rate cut on December 11, but like I have mentioned before that is not the solution for the housing problem.  These rate cuts keep making the value of the dollar cheap against foreign currencies which will hurt the overall economy in the long run.  For those of you who live abroad, that means everything in America is on sale in your currency.