Mortgage meltdown contagion

[EV_Ares]

A grim forecast has economists more pessimistic over how far the collapse will spread to the rest of the economy.
By Les Christie, CNN Money.com staff writer
August 10 2007: 4:16 PM EDT.........................

NOTE BY POSTER:---------------------------------------------------------------------------------
Most of us have all known this about the economy for some time. I have seen several posts about this being a very fragile economy, including the stock market being kept pumped up; all of this on a false foundation. As John Edwards has said we are living in "two economies", Bush & his friends and Wall Street elites and then the working man on main street. Looks like the house of cards is about to see more severe damage, how much we will all pay for this, who knows.
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NEW YORK (CNN Money.com) -- The outlook for the housing market looks even bleaker than it did a week ago. Last Friday we reported that foreclosures were skyrocketing, home prices falling and recovery forecasts were being scaled back. And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy. The U.S. government continues to downplay the danger. When the Federal Reserve met this week, the central bank said that inflation is the greatest threat to the economy, not the mortgage crisis.

Yet, Countrywide Financial, the nation's largest mortgage lender by volume, reported Thursday that "unprecedented disruptions" in the mortgage market were forcing it to cut way back on the number of loans it was securitizing and selling in the secondary markets.
In the financial markets, credit, including corporate bonds, has become harder to get. Mark Zandi, chief economist of Moody's Economy.com, had been loath to call it a "credit crunch." Instead, he called it a "liquidity squeeze," that had spread to corporate bond and other financial markets. The difference: In a crunch, nobody can get a loan; in a squeeze, only the riskier borrowers are cut out."I think it's still a liquidity squeeze," Zandi now says, "but it has elements of a credit crunch, affecting much of the mortgage market."

It has yet to severely disrupt the prime loan market, however, according to Zandi. The situation will continue until financial institutions revalue their mortgage-backed securities to what they're actually worth. "They're faced with redemptions and margin calls, and they have to value their securities to their market prices because they have to sell them," said Zandi. That will determine how hard a hit the investment community will take. Peter Schiff, president of Euro Pacific Capital Inc. and author of "Crash Proof: How to Profit from the Coming Economic Collapse," has said the problem goes way beyond subprime.

"It's a mortgage problem," he said. "Subprime is like a little leak where the underlying problem is the integrity of the dam itself. Most of the mortgages taken out during the past few years will fail." Schiff expects huge losses in the housing market with home prices falling by half in some areas, which he said has to affect the overall economy. He said he'd been expecting the financial markets to start taking hits long before this week's drop.

***"This week is making more sense," he said. "The economy is a basket case."*** (Absolutely is a basket case)

((((entire article @ link below))))

http://money.cnn.com/2007/08/10/real_estate/mortgage_meltdown_crushing_other_markets/index.htm?postversion=2007081016

[ayeshahaqqiqa]

1. I always thought the sub prime market

was a way of keeping the house of cards from tipping over. And of course it would inevitably crash. So what happens next? What is the next smoke and mirrors trick they can put out to con small investors in while they liquidate their assets and head out for some place where they are safe from prosecution?