Defaults in the US housing market are spreading from sub-prime to the much larger stock of top-grade housing debt, threatening to set off a wave of even bigger losses for banks and investment funds.
The Mortgage Bankers Association says default rates on all outstanding home loans in the US have reached 7.3pc, the highest level since modern records began in the 1970s.
Arrears on "prime" mortgages have reached a record 4pc, confounding expectations that middle-class Americans with good credit records would be able to weather the storm.
While sub-prime and close kin "Alt A" total $2,000bn (£1,019bn) of debt, the prime market in all its forms is roughly $8,000bn. If prime default rates rise on their current trajectory, they could ultimately cause huge financial damage....
..."This crisis is not going to stop at mortgages. It is spreading to credit card debt, auto debt, and now student loans. On top of that we think corporate defaults will rise from 1.1pc to between 5pc and 9pc over the next 12 months."
US house prices have fallen by 7.7pc over the past year, according to the Case-Shiller index of the 20 biggest cities. The slide is likely to gather pace as 2.2m mortgages taken out at the height of the credit bubble adjust upwards by 250-300 basis points. Goldman Sachs says house prices may fall by as much as 25pc from peak to trough - creating the worst slump since the Great Depression.
Over 40pc of all mortgages issued from late 2005 to early 2007 are on adjustable rates - a break with the US tradition of fixed-rate borrowing.
Mr Sels said $40bn to $50bn would reset each month from now on, reaching peak pain late this year. "Borrowers never expected to pay the new rates. They assumed they could roll over their mortgages when the time came, but that is now impossible," he said.
"There are very similar problems emerging in Britain, Ireland and Spain. We know from the lending surveys by the Bank of England and the European Central Bank that conditions have tightened a great deal."
Emergency rate cuts by the US Federal Reserve will cushion the blow this year. The federal funds rate has come down from 5.25pc to 3pc since September, and is almost certain to drop further. However, the crisis is now moving with such speed that it may already be too late to avoid a domino effect as one distressed sector topples into the next....
...The latest concern is paralysis in the $250bn US market for auction-rate securities (ARS), which fund state governments. A series of deals has failed over the past two weeks. The risk is a slide in ARS prices along the lines of the mortgage debacle, leaving banks with yet another chunk of losses.
Catherine Austin Fitts notes on her blog (Feb 12, 2008, Is Buffett Positioning to Control Municipal Privatization?):
...the housing bubble and bust is successfully stripping municipalities of their financial sovereignty....
...Enter Warren Buffet to take a position to strengthen the insurance support {backing municipal bonds}....
Does this mean that as municipalities go into technical default or default, Buffet will be in a cross-cutting position to dictate terms to municipalities? So, for example, they have to shut down schools, pass laws requiring terminator seed or sell off their land, water, utilities and other assets.
Seems to me that Buffet is positioning himself to be in the catbird seat to play an invisible IMF to the US municipalities “Argentina.” Buffet and his network can make a fortune enforcing municipal policies and scavenging municipal assets.
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The Goal of the Mortgage Crisis: As a community experiences foreclosures, the property tax receipts for a town/city/county plummet. As governments are unable to meet their obligations, they will become insolvent, and will have to sell off their assets. Privatization of water and other natural resources will occur wholesale in the US in this way.
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Robert Weitzel and Meredith DeFrancesco report on The Daily Scare (Feb 10, 2008, Suchitoto 13: El Salvador’s “American-made” Terrorism Act in Corporate Play):
In 2001 El Salvador replaced the colon with the U.S. dollar as its national currency. In 2006 its right-wing government replaced lawful dissent with U.S. inspired anti-terrorism legislation as its national policy. In return, the Salvadoran people are offering Americans an object lesson in the value of our Bill of Rights when dollar meets dissent.
On the morning of July 2, 2007, an estimated 400 Salvadorans who were waiting for buses to take them to the small town of Suchitoto to attend a public forum on the privatization of water utilities were accused of blocking the road and were attacked by riot police firing rubber bullets and tear gas. Two women and one man were arrested.
In Suchitoto’s central square, word of the attack and arrests spread through the crowds waiting for the motorcade and press caravan of President Antonio Saca, who was coming to Suchitoto to announce his administration’s new “"National Decentralization Policy,” a plan viewed by many Salvadorans as the first step in privatizing the country’s publicly-owned water resources.
In solidarity with the marchers being attacked, people began moving in the direction of the melee. Met by police and military units supported by helicopters and machine guns mounted on jeeps, people in the front ranks, attempting to avoid further violence, raised their hands in the air pleading for calm and shouting, “we are unarmed.” The riot squad responded by advancing on the crowd firing rubber bullets and tear gas at close range. Many Salvadorans were injured by bullets or overcome by gas. Ten people were arrested.
...The fate of the Suchitoto 13 should be of particular interest to Americans who value the right to lawful dissent and free speech. El Salvador’s Decree 108 was not only modeled on the USA PATRIOT Act, but the vagueness and ambiguity of its language rivals that used in the Violent Radicalization and Homegrown Terrorism Prevention Act passed by the U.S. House of Representatives in December 2007 by a 404-6 vote and which is currently being considered in the Senate. The language in both countries’ anti-terrorism legislation has been crafted so that constitutionally protected dissent can, with a corporate nod, be prosecuted as acts of terrorism and result in draconian sentences....
...Whatever the defendants’ ultimate charge, Decree 108 has accomplished what President Saca and President Bush and their multinational corporate partners intended. It has instilled fear and hesitation in the minds of citizens whose right to free speech and dissent are inalienable rights guaranteed by their respective constitutions. In short, it is terrorizing citizens into silence....
Lewis Seiler and Dan Hamburg report on the San Francisco Chronicle (Feb 4, 2008, Rule by fear or rule by law?):
Beginning in 1999, the government has entered into a series of single-bid contracts with Halliburton subsidiary Kellogg, Brown and Root (KBR) to build detention camps at undisclosed locations within the United States. The government has also contracted with several companies to build thousands of railcars, some reportedly equipped with shackles, ostensibly to transport detainees.
According to diplomat and author Peter Dale Scott, the KBR contract is part of a Homeland Security plan titled ENDGAME, which sets as its goal the removal of "all removable aliens" and "potential terrorists."...
Fraud-busters such as Rep. Henry Waxman, D-Los Angeles, have complained about these contracts, saying that more taxpayer dollars should not go to taxpayer-gouging Halliburton. But the real question is: What kind of "new programs" require the construction and refurbishment of detention facilities in nearly every state of the union with the capacity to house perhaps millions of people?
Sect. 1042 of the 2007 National Defense Authorization Act (NDAA), "Use of the Armed Forces in Major Public Emergencies," gives the executive the power to invoke martial law. For the first time in more than a century, the president is now authorized to use the military in response to "a natural disaster, a disease outbreak, a terrorist attack or any other condition in which the President determines that domestic violence has occurred to the extent that state officials cannot maintain public order."
The Military Commissions Act of 2006, rammed through Congress just before the 2006 midterm elections, allows for the indefinite imprisonment of anyone who donates money to a charity that turns up on a list of "terrorist" organizations, or who speaks out against the government's policies. The law calls for secret trials for citizens and noncitizens alike.
Also in 2007, the White House quietly issued National Security Presidential Directive 51 (NSPD-51), to ensure "continuity of government" in the event of what the document vaguely calls a "catastrophic emergency." Should the president determine that such an emergency has occurred, he and he alone is empowered to do whatever he deems necessary to ensure "continuity of government." This could include everything from canceling elections to suspending the Constitution to launching a nuclear attack. Congress has yet to hold a single hearing on NSPD-51.
U.S. Rep. Jane Harman, D-Venice (Los Angeles County) has come up with a new way to expand the domestic "war on terror." Her Violent Radicalization and Homegrown Terrorism Prevention Act of 2007 (HR1955), which passed the House by the lopsided vote of 404-6, would set up a commission to "examine and report upon the facts and causes" of so-called violent radicalism and extremist ideology, then make legislative recommendations on combatting it.
According to commentary in the Baltimore Sun, Rep. Harman and her colleagues from both sides of the aisle believe the country faces a native brand of terrorism, and needs a commission with sweeping investigative power to combat it....
...What could the government be contemplating that leads it to make contingency plans to detain without recourse millions of its own citizens? ...
I'll tell you what the government is contemplating: PRIVATIZATION of public resources, e.g., water. How bad can that be? There's lots of history documented to show how bad it can be:
Small Towns Tell a Cautionary Tale about the Private Control of Water, At World Forum, Support Erodes for Private Management of Water , Water Privatization: The World Bank's Latest Market Fantasy, Fact Pack, Overview at Public Citizen, World Bank, WTO, and corporate control over water, and some thoughts from the Presbyterians
And anyone PROTESTING the privatization of public resources will be designated a DOMESTIC TERRORIST, and you will be sent to one of KBR's lovely camps. Most likely, all of your assets will be seized too. A quiet little forced labor camp in a remote region in your home state.
Anyone else experiencing deja vu? And should we have expected anything less from the grandsons of the men who financed the forced labor camps 70+ years ago in Germany, Poland, and Austria?
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Feb 14, 2008: Check out Elizabeth C. McNichol and Iris Lav's article on the Center on Budget and Policy Priorities website (Feb 11, 2008, 20 STATES FACE TOTAL BUDGET SHORTFALL OF AT LEAST $34 BILLION IN 2009; 8 OTHERS EXPECT BUDGET PROBLEMS). The short of it:
At least twenty-five states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 25 states, specific estimates are available for 20 states; the combined deficits of these 20 states are expected to total at least $34 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.
Lots of good info on that site.
What do states own that could be 'auctioned off' in a case of insolvency? In the case of just the state of Washington, and just looking at the aquatic resources:
DNR is steward of about 2.4 million acres of state-owned aquatic lands, which include the beds of Puget Sound and the outer coast extending out three miles; 30 percent of the marine shorelines of Puget Sound; the beds of most navigable freshwater rivers and lakes, such as the Columbia River and Lake Chelan; and 60 percent of the freshwater shorelines of navigable rivers and lakes.
The states also administer mineral rights, oil and gas leases. Royalties and rental incomes from oil and gas leases supplement states' coffers by hundreds of millions of dollars annually. Here's an analysis on oil and gas production for just Michigan.
Note the US has 1190.62 trillion cubic feet (total) of natural gas.
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