We’ve enjoyed a one year respite in the housing crash.  Yet housing in many parts of the country is overpriced relative to local area incomes.  I want to examine 10 charts that give substantive evidence that we are merely in the eye of the housing correction hurricane.

Chart #1 – Unemployment rate and labor force participation

It is often touted how great it is that the unemployment rate is falling.  First, a large part of that has to do with massive government hiring.  Next, a large part of the rate appearing better has to do with people simply dropping out of the labor force.  The headline unemployment rate is 9.5 percent but if we count those unemployed and underemployed the rate spikes over 16 percent.  Not only do we have an elevated unemployment situation, we have 40 percent of our country working in low paying service sector work.  This doesn’t provide a solid foundation for growing housing prices let alone a bustling economy.  Keep in mind we need to add 150,000 jobs a month simply to keep up with population growth.  Our economy faces challenges that rival those of the Great Depression.  If the unemployment rate were dropping because of adding a good portion of non-government jobs then that would call for a champagne celebration.  Yet calling it great news by massaging numbers is simply an exercise in self-delusion.

Chart #2 – Pending home sales

Given the weak employment situation, it should be no surprise that simultaneously the amount of pending home sales has collapsed to record levels.  The jump you see above from 2008 to 2009 came from gigantic forms of government stimulus.  The Federal Reserve purchased $1.25 trillion in mortgage backed securities.  Why?  No other investor in their sane mind would buy this.  The Fed has also kept interest rates dangerously low trying to encourage additional borrowing.  Alan Greenspan instead of confronting the real structural problems that came after the tech bust decided to take the easy road out and created a credit bubble and brought on a plastic recovery.  We now know none of it was real in sense of it being sustainable.  The above collapse shows the sugar high running out from the Fed and also the very expensive tax credits.

Chart #3 – Construction spending

As home sales jumped on a sugar high from government intervention, construction spending did jump up in the residential sector.  How long will this last now that the government is pulling back?  And in the more sensitive commercial real estate market, growth has contracted.  This is a better reflection of actual demand because who is going to build a strip mall during a time that consumers are embracing austerity?  The residential sector did go up but again, this was merely based on massive government intervention that has no guarantee going forward.  All we did was pull demand forward for one year and operated on tax credit fumes.

Chart #4 – Hires and separations

As expected hires have increased in the first half but this is largely due to government temporary hiring.  But look at the separation line above.  People are hanging on with their clenched hands to their jobs (jobs that are largely paying less).  Do you think these people are looking to buy a massive ticket item like a home moving forward?  The above chart does a good job reflecting the psyche of workers.  Confident workers are willing to leave a job to find a position that better matches their wants in a healthy economy.  What the above shows is that people are holding on tight to their positions even if they are not ideal and fund their needs.  It is all about needs today.  With 5 unemployed workers competing for each single job opening you can tell why the above pattern is holding.

Chart #5 – Export prices

During the Great Depression import and export prices collapsed.  During this globally difficult time we faced massive deflation.  Last week we saw that the CPI went negative.  The market is so tight right now that there is little pricing power for producers.  Ben Bernanke gave a speech a few years ago where he outlined every way we can avoid deflation.  He hasn’t been shy about keeping rates low and also offering quantitative easing.  But this has only helped the banks and that is ultimately who the Fed works for.  Americans as a whole did not benefit from this easy money.  In fact, say you buy a home today with a low down payment FHA insured loan, are you confident that you will have the money to pay off that debt for 30 years?  If anything, the decline in export prices shows that people are not confident about the future and are more concerned about the present.  They are competing on a price level and that is why even with home sales, the large push has come from lower priced foreclosed properties.  As time goes on we are looking more and more like Japan.

Chart #6 – Employment changes in big counties

Even though the stock market rallied in the last year employment has gotten worse.  The stock market is largely an indicator of the casino that we now call Wall Street and really doesn’t reflect reality for most Americans.  Look at the above chart.  While the stock market was raging in 2009 many large counties saw employment contract severely.  This was across the spectrum.  You have your typical Southwest locations but also Texas.  Recent articles have talked about how immune Texas is from the contraction.  Just because you don’t have a housing bubble doesn’t mean you don’t have people that used the same credit cards and auto loans to purchase other items.  We’re all in this together and Wall Street banks are the biggest winners with the stock market rally.  How anyone can look at the above chart and say things are economically good is beyond reason.

Chart #7 – Commercial real estate

Commercial real estate (CRE) prices are down 40 percent from their peak from only a few years ago.  There is no pricing power in this market.  CRE has collapsed and is also guilty of large amounts of toxic high flying mortgages.  This market isn’t going to collapse it HAS collapsed.  The only reasons we don’t see the ramifications of this more visibly is because banks are using extend and pretend tactics while siphoning off money from taxpayers.  The CRE market is enormous coming in with $3 trillion in loans outstanding.  Many of these bad loans are sinking smaller regional banks (we are reminded on bank failure Fridays).  The big banks have these as well but they have a money sucking hose to the taxpayer wallet via the Federal Reserve and every loss they face is already buffered by the majority of Americans.  More and more the public is waking up and public sentiment is furious.  At a certain point, there will be massive calls for action.  You think the public is looking to bailout the CRE market?  There is no political will for helping this bubble market.  In the end, reality will come to the surface.

Chart #8 – U.S. home prices

The only reason that you see home prices increasing above from 2009 to 2010 is because of the government.  From the previous charts, you can see that prices did not go up because of income and wages growing.  This is merely a tiny reflection of easy money coming from the government.  But even with that, you can see that prices are way down from the peak.  The median home price is still down by over 23 percent from the peak.  Why would prices go up if incomes are not?  There is little reason to believe we’ll see any jump here.

And this chart is very important.  I hear people talk about the 1970s and how inflation eventually brought the price of everything up including wages.  Well there is absolutely no pricing power for wages in our current market because we have largely outsourced our manufacturing base.  Working at McDonalds isn’t going to buy you a $175,000 median priced home.  Has anyone looked at what people earn in China?  The real estate cheerleaders make little attempt to connect macro level economic movements with what is going on with housing prices.  The Fed is vigorously trying to inject inflation into the market.  But most of the money is going to the banks!  It isn’t making its way back into the real economy.  What sectors are we seeing wage inflation in?  Without that, good luck seeing higher home prices.

Chart #9 – Total U.S. debt

We have more total outstanding debt as a percentage of our GDP than we did during World War II.  Think about that incredible fact for a moment.  In addition, during the early 1940s we had massive pent up demand and wages because of the deep problems of the Great Depression.  Is a war going to boost our economy?  If you haven’t noticed we are actively in two wars at the moment.  Plus, modern warfare doesn’t require troops that resemble the Battle of Philippi.  It puts things into a precarious state because anyone that is honest realizes we will never pay our debts back.  Why would a global investor put money into a company it knows will never pay it back in full?  Yet we insist on more spending without actually getting money into the economy.  If we really want to stimulate the economy take all the money given to the banks and build infrastructure.  At least it’ll leave something for the country instead of filling up the funds in some investment banker’s offshore account.

Chart #10 – Consumer sentiment

You might have noticed that the casino had a bad end of the week.  Apparently the public realizes how bad things are out in the real world.  Most people (as measured by ratings) don’t watch CNBC and are glued to their ticker tape counting their stock market wealth.  Why?  Because most of it is concentrated in the hands of the top 1 percent but more importantly, most pay their monthly bills and commitments through their job.  The vast majority of Americans simply want a job that allows them to cover the needs of their family.  They don’t care that someone shorted a stock and made a billion dollars.  The demands of their daily life are so removed from that nonsense.  That is why the above surveys are still near their lows.  People are simply not confident with a bad economy.  Outside of Wall Street, Americans are still having a tough time.

In a way, it is something of a coincidence that the big movie out is Inception.  I love the tagline:

“In a world where technology exists to enter the human mind through dream invasion, a single idea within one’s mind can be the most dangerous weapon or the most valuable asset.”

Apparently some people were dreaming when they thought their most valuable asset was their home.

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Today we salute Culver City with our Real City of Genius.

A Condo Will Do

The substitution effect is taking charge in Culver City.  We need to look at June sales to see the trend:

Source:  MLS

In June Culver City had 11 homes sell but at the same time 22 condos were sold.  Before someone tries to say that all cities operate like this, take a look at Diamond Bar (31 homes sold and 25 condos sold).  So why the big divergence?  Well for one, the median price of homes sold in Culver City for both zip codes were $605,000 and $775,000.  At the same time, the median condo price was $330,000.  There are two markets within one city here.

The shift in the makeup of sales has caused the median square foot price to plummet:

Source:  Redfin

The cost is falling because the shift in real estate sales for Culver City is being dominated by condos.  Home sellers are still holding out for insane bubble like prices and the amount of homes selling is falling.  That is why inventory for Culver City is now at a high not seen since 2008:

Source:  Redfin

What exactly is happening here?  I think Culver City is one of those markets that can draw a large number of people that one would call “aspirationals.”  You know what I’m talking about; these are the people that registered their iPhone cell numbers out in the 310 while living in an apartment or go to fancy restaurants and simply order off the appetizer menu.  Since owning has a strong pull even after the market implosion we have seen in California, many are willing to skip owning a home and substituting it with a condo.  At current prices, you have a good amount of people willing to pay and given easy FHA insured financing, buying a condo or townhome isn’t so tough.

I find this trend incredibly fascinating because it signifies a tipping point in the market.  People are starting to pull back on buying the incredibly expensive homes thus home inventory is up while buying up the condos at a much brisker pace.

Let us break down the current market:

MLS listed inventory

Condo/townhomes        -              97

Single family homes        -              63

We have 4.4 months of condo/townhome inventory and 5.7 months of single family home inventory.  We shouldn’t forget about the shadow inventory here.  173 homes are listed as distressed properties with the bulk not making it to the MLS.  Of the distressed data we have:

63 single family homes

88 condos and townhomes

The other properties are a mix of commercial, multi-unit, and land.  But you can see that we still have a large number of homes sitting in the back for an area like Culver City.  If we want to understand why condos are dominating sales we should probably look at the income data for the city:

Source:  Census

The median household income is $70,568 with an average household income of $86,694.  The current median home price for single family homes just doesn’t compute with current income data.  To purchase the current median priced home a family would need an income of $200,000 or more per year.  Only 6.8% of the entire area can go for that level of price.  And what does $885,000 buy you in Culver City?

This is a 4 bedrooms and 3.4 baths home.  It is listed at 3,377 square feet so it is certainly a good sized home.  Yet does this look like an $885,000 home?  It has been listed on the MLS for 428 days and has a sale pending.  People are still willing to buy in these markets but again, the bulk of the sales are coming from lower priced units.  This is similar to what happened in lower priced markets back before they tipped over.  You see expensive units stall and sit idle while inventory builds up and lower priced units move.  You can’t stop the momentum unless incomes double overnight.  What other markets are seeing a big jump in condo sales?

Today we salute you Culver City with our Real City of Genius Award.

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There is a flip side to housing values falling which seems to be ignored since most of the mainstream rhetoric is guided by the FIRE (finance, insurance, and real estate) experts.  The most obvious benefit is those looking to buy their first home don’t need to put themselves into so much debt that they risk their entire financial future for a home.  The next subtle change is the amount of money diverted from housing related spending to other sectors of the economy.  This last change will take time to sink into the overall economy but there is definitely a benefit of moving away from an economy highly dependent on Wall Street finance and real estate.

If we look at the current nationwide situation, the amount of distressed loans is stunning:

I think that the above disaster in distressed mortgages is causing very little reaction because we have somehow adapted to the current shocking situation.  Over 10 percent of all U.S. mortgages are at least one payment behind and another 4 percent are already in the process of foreclosure.  This figure is incredible given the entire mortgage market is made up of over 51 million active mortgages.  In 2007 if you were to tell someone that prices in California would fall by 50 percent (even 10 percent) many would have ignored you.  Now, it is standard practice for the market.

As a country we are much too reliant on real estate.  Commercial real estate is the next tragic saga in the RE bubble bursting with prices already falling by 42 percent.  At one point, CRE values in the U.S. were up to $6.5 trillion (now this was a rough generous estimate at the time).  Today, CRE values are down closer to $3 to $3.5 trillion; this is roughly the same amount of CRE loans outstanding.  This has pushed defaults through the roof:

The exponential rise is cause for serious concern.  There is little energy or political will to bailout the enormous CRE market.  This probably won’t stop the Federal Reserve and U.S. Treasury to game the system yet again and put taxpayers on the hook.  They created this massive monster and now want the public to fight it off with pitchforks.  The above chart is disturbing and the amount of bank failures we are seeing is directly related to the above trend.  Many smaller banks are deep in the trenches with CRE debt and much of this is now going bad.  How many strip malls do we really need?  Maybe having 20 Taco Bells in a one mile radius probably isn’t such a good idea.  Many of the commercial projects were built in the anticipation of sky high residential prices to justify their absurd underwriting expectations.  The above results have no excuse and are largely a reflection of massive delusional speculation in all things real estate.

Now that expectations are coming more into line and the fantasy world of Alt-A, subprime, and option ARM loans are behind us, most people have to qualify to get a loan with actual real income which many are now finding less of.  Banks lending virtually all government money, are now beholden to stricter (aka basic due diligence) in order to give out loans.  Yet if we look at the negative equity situation, the real estate monster grows scarier:

Over 20 million mortgage holders are underwater.  It is amazing that a few years ago, Deutsche Bank estimated that at the ultimate trough of the housing market, nearly half of all mortgages would be underwater.  This “doomsday” scenario seemed extremely farfetched.  Today, another 10 percent nationwide price decline would put us there.  Even without prices declining further, having 20 million Americans underwater is not a good sign going forward.  You figure over 7 million people are one payment behind or in foreclosure.  But what about the other 13 million?  This enormous group is basically a large cohort of renters but in a worse financial situation.  They are stuck.

In this market, renters are treated as second class citizens although they make up a large part of the market:

1 out of 3 people in the U.S rent their place of residence.  In states like California the number is closer to 1 out of 2 (some counties have more renters than owners).  Yet there has been little discussion about this market.  There have been programs to defer or even help in paying for mortgages of those who lost their jobs but what about those who rent and lost their jobs?  Who are we helping here really?  If anything, this is a transfer of wealth to banks since many of these people will lose their home anyway.  I’d be curious to see a breakdown of the “official” 15 million unemployed and their housing status.  Trying to keep housing prices at levels that were clearly unsustainable is bad policy going forward and is partly a large reason why the economy is still muddling through.

Most of the parts of this real estate Frankenstein show up in a few common states:

Nearly half of all the latest foreclosure filings came from four states.  The concentration of toxic mortgages in these states and also, the massive jump in prices is still hurting the market years after the bubble burst.  With the employment market weak and anemic, there is little reason to believe (or even hope for) higher housing prices.  This actually hurts those who will buy in the future and commits a large portion of their income to housing moving forward.  This also means they have little money to spend in other areas of this consumer based economy.  So this idea that we need to keep feeding housing is really a preoccupation and obsession that comes from the FIRE economy.  These bad habits are hard to change and so far, little has been done to change this.  Normally it takes drastic circumstances to change people’s behavior.  You would think that the deepest recession since the Great Depression would do that but it hasn’t.  People realize what needs to be done merely by intuition yet we have no Pecora to move the political wheels forward.  The deep capture of our government to Wall Street is stunning.  And because of this, we have a massive real estate Frankenstein walking around our country bumping into taxpayer dollars at every turn of the corner.

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California is likely to face a lost decade in housing.  Do I mean from 2000 to 2010?  In some areas we have already reached a lost decade.  Yet many areas will face their lost decade from 2010 to 2020.  Here are 5 reasons why California real estate will have a decade of slow or no growth ahead:

Reason #1 – High paying finance and real estate jobs are gone

I went ahead and compiled 14 years of license and broker data for California above.  From 1996 to 2002 we averaged approximately 300,000 active licensees in the state.  This was before the bubble ramped up.  We reached a peak in 2008 of 549,000 active licensees.  Today that number is down to 493,000 and is continuing to fall as many simply let their license expire.  Even with recent sales increases we are still close to half the volume of the bubble years.  Plus, home prices are half of what their peak values were.  So even basic math will tell you that at the very least, half of income in this industry is gone (for example the 5 to 6 percent agent cut is based on the sale price).  Then on the lending side you have 96.5% of loans being government backed and these don’t provide the nice kickbacks that the option ARMs did for example.  In other words, high income no GED required jobs are now gone.  Even those with industry specific degrees and training are finding it hard to get good jobs in today’s economy.

And many other jobs tied to the FIRE side of California employment and construction took big hits:

These were good paying jobs that are now gone.  Many of these jobs depended on the perpetual growth of the housing bubble.  But even as we will see with inventory levels, do we still have a bubble in this industry?

Reason #2 – Too little inventory and sales for the amount of workers

I went ahead and took a major snapshot of how much MLS inventory is currently listed for public view in California.  Although inventory is spiking, you start seeing issues that are plaguing the industry:

Since February of this year California has added 64,500 homes to the MLS, an increase of 41 percent.  This is a massive jump.  Part of this jump aligns perfectly with the failure of HAMP and more banks pushing inventory onto the market.

But let us use that current inventory number and run a quick analysis:

493,576 real estate agents and brokers / 219,217 homes on the CA MLS = 2 ¼ agents and brokers for each home

I find the above fascinating.  We have close to 500,000 licensed agents and brokers for 219,000 homes on the market.  And you wonder why we have a problem?  This is like going to a used car lot with 20 cars and finding 50 sales representatives.  However like many things in life, I believe that the Pareto principle applies here as well.  That is, 80 percent of sales is likely to come from 20 percent of those with active licenses.

Although the shadow inventory is much larger than the 219,000 homes on the MLS, agents and brokers only make money when they sell.  And banks don’t seem in a big hurry to move the entire inventory out at once.  In other words, we have years of junk built up in the pipeline with wages slashed.

Reason #3 – California budget and revenues shattered

If you want to see a problem in the making look at this:

The state for the fiscal year of 2007-08 collected over $101 billion.  How do things look today?

For the fiscal year that is coming to an end, we are projected to bring in $81 billion.  We are short by $20 billion and this includes every kind of tax increase you can imagine.  This does little considering half of the state revenues come from personal income taxes and many of those high paying bubble jobs (see above) are now gone.  Yet the state kept spending more and more assuming that a Ponzi like income stream was going to come in forever.  That is not the case as we are now painfully finding out so we must adjust.

The Legislative Analyst Office (LAO) is projecting problems well into 2015.  Another issue that the state will have to contend with is high pension costs of soon to retire baby boomers.  Recently CalPERs announced that the state will need to pitch in $700 million to cover its poor bets.  They are pulling back for the moment:

“(LA Times) Facing political fire, the state’s largest public pension fund Wednesday retreated for a month from a plan to approve a $700-million increase in taxpayer contributions it gets from the state and about 1,000 school districts.

State Treasurer Bill Lockyer, a member of the California Public Employees’ Retirement System board, said the fund needs to assess the consequences of the huge hike on California at a time when the state faces an estimated $19-billion budget deficit.”

You can rest assured that there will be some serious battles on this front for years to come.

Reason #4 – Shadow inventory

The Wall Street Journal put together data regarding shadow inventory that we already knew about.  California ranks near the top of shady banks and home squatters that are simply staying put and not paying their mortgage:

Source:  WSJ

This is just nuts.  In California 7 percent of loans that are 90 days overdue are not in foreclosure!  What is even more stunning is the nationwide amount of people living in homes with no payment and foreclosure for 2 years!  This is a slap in the face of every prudent middle class American.  And the idea of poor homeowners is nonsense here in California.  You have folks living in prime locations not paying their mortgage who can easily afford a nice rental.  But they’ll sit it out while banks sit back and suck on the taxpayer gravy train.  This data merely confirms what we already know.  The state is plagued with delinquent loans.  In fact, 15 percent of all California loans are 30+ days late or worse.

Reason #5 – Consumer psychology and jobs

The mantra that real estate prices never fall is completely shattered for an entire generation of Americans.  Those who lived through the Great Depression are largely absent from our current economy and can’t share their wisdom.  And given the preference of Americans to watch Dancing with the Stars instead of reading some history, many have forgotten that real estate can crash and crash hard.  But if history is any guide, we will have a generation of Americans who are more cautious and thus will put a lid on any mega jumps in appreciation for the next decade.

On Friday the California unemployment rate came out and we are still at a record high of 12.6 percent.  Adjusted for the underemployment rate we are closer to 23 percent.  Even the running average at the BLS shows us over 21 percent:

Keep in mind this is a one year rolling average so this will only move higher as we have been at peak levels for many months.  This also goes back to my earlier reasons for a lost decade in home prices.  Those high paying jobs are gone.  You can only purchase a home by what your income can support.  A large number of those depended on toxic mortgages that were easy to churn on a short notice.  After all, giving NINJA loans with no verification allowed seedy mortgage brokers to turn out loan after loan.  Now even with lax lending in FHA insured loans, at least they have to verify income.  As it turns out, there simply isn’t that many that can qualify in California.

I see a sideways moving decade for California real estate.  And for the next one or two years prices will start trending lower again as the Alt-A and option ARM waves hit and the gimmick parade starts running out.  You can only keep a lid on corruption for so long.  The “once in a century” problems now seem to be hitting every month.  A near 1,000 point drop in the Dow, the trillion dollar Euro bailout, and other mega events will come quicker as a reckoning day will hit.  All it takes is a failed Treasury auction and you can kiss cheap mortgage rates goodbye.

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Wall Street is so out of touch with how bad things are in the real economy that they are fighting on the semantics if fraud actually occurred.  But to many Americans watching this circus, they are wondering how in the world someone could make billions of dollars by betting against the implosion of the American housing market (a market where 69 percent at one point owned a home).  That is the disturbing element now being leaked into the market and psyche of Americans.  Goldman was one of those lucky banks that received a nice chunk of the trillions in bailout money pumped out by the Federal Reserve and U.S. Treasury. So what people are coming to grips with is the idea that the government essentially bailed out the decade long gambling spree of the biggest cronies we have seen in modern finance.  Who benefitted from this kind of deal?  The bets in fact, actually made things worse.  In order to satisfy this gambling spree and make it even bigger, the message was sent out (with the implicit desire from Paulson and Goldman for junk mortgages) to brokers on the streets who kept pushing out option ARMs, Alt-As, and every other piece of crap we have come to witness so they can add it to one giant bet.  It would be one thing if it was only Goldman but virtually every investment bank got in the game.

So where are we today?  The market is still in complete disarray:

Source:  First American Core Logic

The latest data shows that in January of 2010 the U.S. market with all of its home sales, had 29 percent of all these sales come from the distress pool.  And as you can see from the chart above, a large number of distress sales will cut into the average sales price.  That recent bump has come from artificial stimulus through the tax credit, HAMP stalling, and the Federal Reserve buying $1.25 trillion in mortgage backed securities keeping mortgage rates artificially low.  But these things can’t last (the tax credit as of today has expired for new home purchases).

What is hard to understand from a psychological standpoint is how people can think things are good when we have over 7 million mortgages that are either 30+ days late or in some stage of foreclosure?  We are, as of today even with all these new measures, near the peak of the foreclosure problem.  Last month was the highest foreclosure filing month ever recorded!  This is not good.  How someone can interpret this as good news really baffles the senses.  Until that distress percentage creeps down into the single digits, the market is highly volatile.

If you think mortgage fraud has gone away because option ARMs and sub-prime mortgages have gone the way of the dinosaurs, think again:

Source:  CNN

“The report described several types of fraud that were detected most often. These include so-called “liar” loans, in which mortgage professionals knowingly listed false income claims for borrowers; inflated appraisals, in which mortgage loan officers or brokers pressure appraisers to overvalue a home so it would qualify for a bigger mortgage; and false occupancy claims, which is when buyers claim they will live in a home but are actually buying it for investment purposes.”

It isn’t like we have flushed out the industry with new rules and sensible financial regulation so why would we expect anything different?  And what a stunner that California ranks as number three in the nation for mortgage fraud.

Some of the hardest hit areas are in the “fab four” states of California, Florida, Arizona, and Nevada:

Source:  First American Core Logic

Riverside, the largest city in the Inland Empire had a distress sales rate of over 60 percent (the only large area to have this figure even beating out Detroit Michigan).  Aside from looking at this data as just a statistic, think of each family and household that is struggling to make their mortgage payments.  People don’t want to lose their homes (typically).  Sure we have a unique market in California where thousands of homeowners are strategically walking away from their homes even though they have enough income to pay their bills.  But the bulk of these distress cases are Americans that have lost jobs, have seen their mortgages recast/reset, or have seen their hours cut back.  1 out of 4 Americans with a mortgage is underwater on their mortgage.  And that is why the amount of equity Americans have in their home is near an all time low:

Source:  Calculated Risk

People forget that the housing bubble occurred at an arms distance.  How so?  Well follow the chain:

Borrower > (take on toxic loan with the hope that they would flip/sell before the mortgage payment went higher ideally with a much higher price).

Mortgage Broker > (didn’t care if you were unable to pay mortgage 1 year later, they get their commission upfront and higher for the more toxic loans).

Wall Street > (once they sliced it and diced it into crappy mortgage backed securities or other junk like CDOs, it was off their hands but not without a big fee – then they bet on it).

So who really was responsible for things once they went bust?  You and everyone else in this country.  Millions of borrowers have now lost their homes.  Mortgage brokers and lenders are now fighting for small spots to push out government backed loans.  Wall Street was the last untouched party but only thanks to trillions in bailout dollars.  Yet it looks like this last bastion of protection is being eroded away with the push against Goldman, the number one investment bank on Wall Street.

I stumbled upon an article from Dr. John Grohol over at PsychCentral showing the most heavily prescribed psychiatric medications in the U.S.:

From 2005 to 2009, the biggest jump occurred with Xanax, a medication that is largely aimed at helping calm anxiety and anxiety associated conditions.  44 million of these prescriptions were given out in 2009.  Without a doubt this economic recession is exacerbating underlying issues with many Americans (Xanax prescriptions jumped 29% from 2005 to 2009 even though our population only increased by 4%).

I look at indicators like this, or jobs, wages, cost of health care, food, and so far I haven’t seen what I would expect after pumping trillions of dollars into the economy.  The typical American family has seen very little relief or help.  Sure, Wall Street is up by over 70+ percent but that is because most of the money went to the crony bankers.  And now the investment banks and Treasury are trying to say how great we are doing with TARP and it is going to cost much less than expected.  Yet they don’t talk about the great mortgage casino:

$1.25 trillion in mortgage backed securities purchased by the Federal Reserve

$1 trillion in other loans and questionable debt the Fed took on through the alphabet soup of programs

$125+ billion to Fannie Mae and Freddie Mac that continue to support loans even though mortgage fraud is still rampant

4 out of 10 loans is now insured by the FHA which is seeing record defaults and is likely to see a bailout soon

Converting i-banks like Goldman and Morgan Stanley into bank holding companies to have access to the Fed so they can gamble even more

AIG?  $47.5 Billion and a big chunk of this went straight through to Goldman for additional bad bets (do you notice how often we use bets as if we are talking about a bad gambler in Vegas?)

Wells Fargo                         $25 billion

Bank of America               $45 billion

JP Morgan Chase             $25 billion

GMAC $16.3 billion

GM  $50 billion

And a long list of other items.  So people aren’t buying that absurd spin that the cost will be so small:

“(Moneynews) One Treasury estimate put a cost of $87 billion on the financial bailout, well below the $250 billion the Congressional Budget Office estimated last year or other analyses that put the all-in number at $1 trillion or more.

“If you are going to do a ledger, you have to do a full and complete ledger,” Whalen told The New York Times.

“To talk about making money on short-term transactions with the TARP while you have this huge cost to the nation is incongruous.”

Analysts say a major factor missing from Treasury’s math is the huge transfer of wealth from investors to banks that resulted from the Federal Reserve’s near-zero interest-rate policy.

Banks benefit because they earn fat profits on the spread between what they pay for their deposits and what they reap on their loans, especially credit cards, which have a current average rate of 14 percent.

Savers and investors lose, especially those on fixed incomes.”

Just like people look back on Tulip Mania or the technology bubble, people will be asking how in the world did we allow so much gambling to take place with mortgages?  But more importantly, they’ll be asking why we didn’t reform and fix such an obvious mistake even after so much economic pain was unleashed.

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