CHESSNOID

Before President Bush leaves office after 2 terms, we should review his accomplishments.  He had 2 recessions in office, 1 in each term.  Only one is official from 2001, and the one we are in now is “unofficial”.  He waged two wars that we are still fighting.  The US economy has seen both record high foreclosures and record high gas prices on his watch.  Good job, Mr President.  All this was accomplished with his cabinet, Bernanke, and Paulson’s help.  This is the dream team that brought America’s economy to its knees.

Before the housing bust started to unravel and the housing boom was still alive, there was one site that started doing a count on the number of lenders imploding. The site is known as the Mortgage Lender Implode-o-meter and is up to 271 today. I think it took a lot of foresight to see that trend happening early on.

Now, I wonder if a new trend is developing with our banks. I saw a small news item that another bank was taken over by the FDIC last Friday in Florida. Before that was 2 banks the previous Friday, and IndyMac a week or two before those 2 banks. On top of this was the bailout of Fannie Mae and Freddie Mac. The bank stocks rallied in the last 2 weeks on investor hope that the worse is behind us. I really wished that was true, but I don’t think the stock or housing market is at the bottom yet. As far as banks closing, we can read the Saturday news of the previous Friday closings and see how consistent this activity becomes.

When you read about the housing bail-out recently passed by Democratic Congress and the Republican President, you realize it is a poor plan and still doesn’t directly deal with the current problems at hand. The rising costs of fuel and commodities (food) prices will continue to go up until the Federal Reserve actually raises the artificially low interest rates. The Federal Reserve did the 7 interest rate cuts in a 7 month period to try to prevent the housing bust from sinking further. Obviously, that plan failed miserably. In doing so, the Federal Reserve inadvertently kicked off inflation on oil and commodities in that same period. Until they start raising interest rates again, foreign and domestic investors have no incentive to put their investment capital in the US dollar to earn 2%. It really is that simple.

The housing market will eventually resolve its situation in time. Once housing prices fall in line with the ratio compared to what people make and can afford with traditional loans, the market will stabilize. That is exactly what was happening when the sub prime loans started to crash and the market started to correct itself from the excess gains in the housing market. The reason why it hasn’t finished is because the market is still overpriced right now in most areas and we have another wave of mortgage defaults coming down in an already weakened economy (check out the graph on Dr.HousingBubbles blog to get a better picture).

The Economy: Not Unbad?