I'm not totally convinced the financial world is ending, but there is a very real problem of foreclosing on millions of homeowners all across the nation. The argument can be validly made that these borrowers should never have gotten mortgages in the first place, but after you make that rather sanctimonious judgment answer this:
How many of the daisy-chained consequences of this unwinding are you personally willing to bear?
While Mr Paulson sought to reassure Americans yesterday that the economy was strong, Mr Dodd warned that up to 3 million people were in danger of losing their homes in the fallout from the sub-prime mortgage crisis. "I would urge every possible step to be taken to keep people in their homes," said Senator Dodd, describing the likely rate of foreclosures as "deeply, deeply troubling".
For many new homeowners, low-interest "teaser" rates fixed in 2004 and 2006 will expire later this year. Senator Dodd said that in some cases, repayments would leap from $400 to $1,500 a month. He added that when a home is repossessed in an economically vulnerable area, the value of nearby properties slumps by up to $5,000. "Think of all the ripple effects," he said. "If we don't deal with this, it could spill over and become more serious." [More]
This "ripple" could be as understated as Mr. Bernanke's assurances of "containment" were overstated.
Already-battered U.S. auto sales could be the next victim of the problems with mortgages, declining home and stock prices as potential car buyers delay purchases due to uncertainty.
Industrywide U.S. auto sales in August could be off 10 percent from a year ago, according to an early read from sales tracker Edmunds.com. That follows July sales that were 19 percent below year-earlier levels.
Jesse Toprak, executive director of industry analysis for Edmunds.com, said that the downturn in home values and credit issues that were seen in the July numbers could be an even bigger factor this month.
"I think the issue is becoming more pronounced," he said. [More]
We all enjoyed the booming economy propelled by home-equity-loan-fueled consumer spending. The government enjoyed record tax receipts, retailers rejoiced, and employment surged.
So if you think this is all going to stop in poorer neighborhoods with strapped borrowers, you may be in for a surprise.
Apparently Ben was.