The Impending Danger from the Continuing Foreclosure Crisis

Posted on January 17th, 2012

Photo by Renjith Krishnan

Washington goes into a mood of denial, refusing to see the impending danger from the continuing foreclosure crisis. The media has failed to focus on an important event – the sending of a memo by the Federal Reserve to Congress committees overseeing the financial segment carrying a message of warning. The action is extraordinary as the note came without any prompting.

The note stated that the housing market is challenged by excess supply, losses from inept foreclosures and absence of constructive policies that are causing property value to further tumble; it is dragging the broader economy preventing strong recovery.

The concerns of Bernanke have been echoed by three other three top officials of the Fed – presidents of Fed banks of Boston and New York and Federal Governor Betsy Drake. The president of New York Fed, William Dudley said, “The ongoing weakness in housing has made it more difficult to achieve a vigorous economy recovery”.

There are many indications that the present policies pursued in the housing sector will at the least put brakes on an economic recovery and at the most lead to dangerous consequences that will impact not only on the financial segment but also on the well being of the middle class.

The zombie banks have performed poorly while the government has been trying to cover up these faults. This has inevitably led to the failure of the housing programmes initiated by Washington. The programmes relied on voluntary support of financial entities who know nothing but the lining of their own pockets.

The national economy depends 70% on consumer spending and this is the vital part for any recovery. To garner sufficient demand the middle class should have money in their purses plus there has to be spending by the top 1% sitting on wealth. The report of the Fed suggests that the housing crisis is unlikely to recover.

The report stated that over $7 million of equity on residences has vanished. This is over half of what the amount was during the early part of 2006.

It noted, “This substantial blow to household wealth has significantly weakened household spending and consumer confidence” The worst affected has been the middle-class because for them the house is the prime source of wealth. The lower income group is not likely to be homeowners while the upper income group has other types of wealth like businesses and financial assets.

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The Impending Danger from the Continuing Foreclosure Crisis

Filed under Foreclosure Crisis, foreclosures |