LTCM was not bailed out by the US government; rather a consortium featuring Fed Reserve Bank of NY, Citigroup, Lehman Bros and the rest of the Wall Street usual suspects banded together and pumped enough money into LTCM to prevent a full-blown meltdown. Had this meltdown occurred, it would reverberated throughout the financial markets with devastating effect.
I mention LTCM for two reasons: (1) You don’t have your facts straight on this topic, or, it appears, regarding real estate, and (2) What is occurring right now with the sub-prime mess specifically as it relates to Wall Street players like Bear Stearns and Merrill Lynch is about to have the same long-term implications.
Bear Stearns and the rest of the investment houses are facing a similar meltdown and are being forced to buy back securities totaling billions of dollars. These securities, which were offered as being valuable investment instruments are now considered nearly worthless (see “4plexowners” link regarding selling these for 11 cents on the dollar).
Do you believe for a second that these billions of dollars worth of securities hitting the market at fire sale prices are not going to have a profound effect on banks, mortgage houses and financial brokerages throughout America and the world? These securities, in essence, were the backing for all of those “suicide” and “liar” loans getting ready to reset at significantly higher rates of interest.
What will happen to the foreclosure market then? More importantly, what will this mean for new underwriting and credit reporting guidelines?
You are seriously delusional if you think mortgage lending and housing are going to be anywhere near healthy again anytime soon.
We have just hit a couple of bumps on the road leading off of the cliff. The precipice is ahead and the brakes just failed. Enjoy the ride.
