Daniel concludes his article by saying "the worst of the housing debacle might be behind us"... of course, what he is alluding to is the worst of the write downs from bad mortgages. But the worst of the housing debacle is by no means behind us. Neither is the worst of the banking blues behind us.

Two terrible twisters are tearing through the financial sector. One is the derivative market. In a nutshell, Wall Street builds money upon money; abusing the money creation process for their own expansion. As this house of cards towered to the skies the underlying foundation crumbled and down came all kinds of securities that were nothing more than loans upon loans, or contracts upon contracts; in simple terms: money expansion. As these derivatives fold up capital, the FED opens new spigots to create more loans to replace the capital; this drives up the cost of living while doing nothing for profits or wages. Net result of the first twister is the culmination of 95 years of paper money; even folks with good jobs can no longer afford to pay their mortgage and gas and food... hence, the foreclosure epidemic (the 2nd twister) is fed with the failure of the currency on top of all this bad paper written from 2003-2005.

Now take a closer look at the housing market. New construction is dead; the index that tracks new construction market has been reporting in the twenties and teens for two years now; any number under 50 is unfavorable. We overbuilt. We don't need the housing we have, so there is very little demand for new construction. The builders blues are hardly behind us; they continue to lay off workers and shut down firms. What we have going right now is a skeleton builders trade; it will stay that way for another decade.

Existing housing is still an open market but it continues to lose value; why? Well, for one, the Lender meltdown since 2006 has decimated the market of available credit; it is so tough to get a loan these days and that translates into lower demand; bringing down price. Then there is the way values are ascertained for Lenders; the comparable sales of the last six months determine the value of the home on the open market; by now the whole nation has experienced a local collapse of value and available credit; comparable sales are often foreclosure sales; it is a market cycle of lower sales causing lower values and desperate sellers dropping the next set of comparable sales even lower, which also has produced a very real panic in the Lenders as they are afraid that any mortgage they approve will end up going to a home that will lose value almost as soon as the deed is recorded. Meanwhile, the poor people in trouble from the collapsing currency (read: skyrocketing cost of gas, food, et all) are watching all their home equity evaporate into thin air and there is very little incentive to continue paying the monstrous mortgage; especially when it no longer leaves enough money to drive to work and eat entire meals. So the collapsing housing market together with collapsing currency is creating foreclosures out of what were good loans; even fixed loans that have been in place for ten years and were not written during the boom or were even considered when they projected the problem loans that would bubble into foreclosure 2007-2009.

How does this affect the banks? Folks this is the credit crunch. Our home mortgages are the long term bonds that were the backbone of the banking industry. Banks made a ton of money off those loans. They also wrote a ton of derivatives on those loans. When you see major banks collapsing, which is what is happening when you see them selling their base worth, you should see a sign of something bigger: the 95 year old currency is collapsing. When you over expand the money supply while eroding the underlying economy for half a century, and wake up in the 21st century to a decade of giant budget deficits paired with giant trade deficits shored up by giant Treasury auctions to overseas central banks (read; we sold the nation off to the British, Japanese and Chinese central bankers) the final act comes to play when you no longer can float enough debt to sustain the values you pretend to be holding. That's when an adjustment to currency happens. Adjustment, as in, the house of cards on Wall Street folds in and the cost of everything goes up while the value of our homes and wages caves in.

In the final analysis, this housing debacle is more than just a hangover from the housing boom. It is a simultaneous popping of the housing bubble and the currency bubble of the central bank at the same time. That's why things just keep getting worse, no matter how many losses get posted by the major banks. The nation wants you to keep struggling, to go down with the ship, so they don't ever say that the currency is collapsing. They don't tell you that the old republic currency stored 100% of its value for 150 years, but that this new central bank currency has lost 98% of it's value since it's introduction 95 years ago. They don't want you to wake up and realize that the economy is a fiat paper money driven economy and that it is the currency, stupid, that is collapsing and bringing the economy down with it. When you see this for what it is, you realize that the worst of the housing debacle has just begun.

That is not very nice of you.

Not very nice at all.

While it is nice to think of the housing boom and bust as a tragedy caused by a few greedy Wall Street Bankers, the 'average Joe' were not complaining when property prices went up by 20% a year. Greed is contagious.

Credit was cheap for a long time. Instead of using the cheap money to invest in capital investment, America has decided to go on a spending spree instead. Flat screen TV, SUV, bigger houses, and a war in Iraq. The value of a mortgage does not lie with the ability of the debtor to pay back the loan, not the selling price of the house. To allow people with no income, job or asset to take out loans is simply FRAUD. This is more than just a mere downturn - the market is no longer able to price risks properly.

Derivatives are not evil in themselves. Originally they are conceived as a way to balance out risks. Unfortunately, the complexity can also be used to obscure the underlying risk involved, and financial advisers have successfully sold derivative products to local governments and hospitals as 'AAA bonds'. The conduct of rating agencies like Moody is outright criminal, and for a few $$$ they have destroyed their reputation forever.

Lastly, we're in an environment right now where 'short selling' hedgefunds can make billions of dollars if they can force a bank to collapse. This is the same as paying arsonist for burning down your house.

a mature fiat paper currency in the beginning stage of collapse.

what else did you expect?

The drop in currency value can be seen as investor verdict on the spending and taxation policies of the Republic. The level of inclination to control spending. Various bias in the media and university communities toward the public fisc.

A more serious climate toward the burdens undertaken by our goverment would improve investor confidence.

Fiat currency is all about confidence.

Days,

I caught Daniel's breezy assurance about the worst being behind us, too, and my reaction was to snort derisively. Thanks for the incisive analysis here.

As we are learning, much to our chagrin, leverage works both ways. Wealth can be magically multiplied by fractional reserves, or as in the case of investment banks, even ignoring those limits. But when the base cracks, ah, the credit crunch gets magnified too. Every loan gone sour can 'disappear' ten times as much wealth.

an honest and truly conservative fiat authority that has a mission to serve the whole as fairly and efficiently as possible. If we had anything close to that, we wouldn't be in the meltdown we are experiencing today. The major players, those same big banks that control the currency, are the ones who trust it the least. That's because they all know what big crooks they all are.

The best way to describe the fair play employed in international banking circles is to picture an overgrown school of piranha feeding on itself.

sucking in credit instead of building it.

It's almost like watching one of those old B horror movies in real time.