Generational Dynamics: Forecasting America's Destiny Generational
 Forecasting America's Destiny ... and the World's


Generational Dynamics Web Log for 13-Feb-08
Treasury Secretary Hank Paulson: "The worst is just beginning - we all know that"

Web Log - February, 2008

Treasury Secretary Hank Paulson: "The worst is just beginning - we all know that"

Who is this guy, and what have they done with Hank?

In an effort to cushion the blow of the surging foreclosure rate, Treasury Secretary Henry Paulson, along with a group of banks called the "Hope Coalition," announced an agreement to offer 30-day freezes on foreclosures.

Treasury Secretary Henry Paulson (right) and secretary of housing Alphonso Jackson <font face=Arial size=-2>(Source: Bloomberg)</font>
Treasury Secretary Henry Paulson (right) and secretary of housing Alphonso Jackson (Source: Bloomberg)

The announced program would start with a letter to homeowners more than 90 days delinquent. The letter lays out procedures to qualify for a "pause"in the foreclosure process. The homeowner has 10 days to respond so the lender is able to weigh payment options.

Subprime, Alt-A and prime borrowers are eligible, according to the plan. Subprime mortgages are made to borrowers with poor credit or high debt. Alt-A loans are for borrowers who want atypical terms, such as proof-of-income waivers or investment- property collateral, without sufficient compensating attributes, such as larger down payments. Securitized loans, those packaged and sold to investors, would also qualify.

It was just a month ago that Paulson was refusing to consider a bailout plan on foreclosures. However, the housing data is deteriorating so rapidly that he's been forced to change his opinion dramatically.

In response to a journalist's question, Paulson said that the worst was to come. You can watch it here:

Here's my transcript:

Question: "Sir, is the worst over? Will 2008 have fewer foreclosures and some rising prices compared with '07?"

Paulson: "Well, I would say this. In terms of subprime and the resets, the worst isn't over - the worst is just beginning. We all know that.

We all know there's close to 1.8 million 2 million adjustable rate mortgages where the rate is gonna be reset, and the ones that are going to be reset over the next couple of years are that vintage of mortgages where there are the most lax underwriting procedures.

So this is the biggest challenge, and this is why this is so important.

And I've also said that the housing correction, what's going on in the housing marekt, this is not over, it's going to take longer, and that is why we have said we have a diverse economy in the US. It's been growing in the face of the housing correction that's been going on for some time. Growth has slowed down significantly. And we said that we think the economy is going to continue to grow but the risks are to the downside.

That's why we're working so hard right now at IRS to speed up the process so we'll be getting these stimulus checks out and to individuals as early as the beginning of May."

At another point, Paulson said the following:

"That is modeled on a program that was put in place during the Depression. We have many institutions that are now in place that weren't there" to help in the 1930s, while the unemployment rate is now 4.9 percent, compared with 25 percent back then.

Regular readers of this web site are well aware, as perhaps Paulson is by now as well, that the country will soon be entering a new 1930s style Great Depression.

This foreclosure program will have no major effect, though it may help a few people. Or, it may simply give those who obtained their homes fraudulently a little while longer to enjoy their fraud.

It's amazing how far we've come. It's been obvious since 2004 that we're in a housing bubble, at least to readers of this web site.

Actually, even Fed chairman Alan Greenspan in 2004 said, in a statement exhibiting a bizarre form of circular reasoning, that there may be a housing bubble, but if there was it's OK, since it lets people use refinancing to pay off their credit card debt -- which was also increasing.

However, that statement was unique. Few people admitted that there was a housing bubble. Then when the housing bubble started leaking late in 2005, few people admitted it. As the bubble started leaking, almost everyone said that the bottom had been reached.

For years, journalists, pundits, analysts and politicians have been completely wrong. Only this web site has been right: All the predictions on this web site have come true or are coming true. You can see it before your eyes.

Now, with housing deteriorating so rapidly, even Treasury Secretary Paulson is saying so. This is an incredible change of attitude. It's the first REAL admission from the administration that things are going from bad to MUCH WORSE, and that it will continue.

For those people who have criticized Generational Dynamics or this web site or me, you now have to face the fact that almost EVERYONE ELSE has been wrong, and this web site has been right -- for years, time after time. There's no web site or pundit or analyst in the world with the predictive success of this web site.

The point I want to make is readers of this web site have a big advantage over most other people: You know what's coming. You can't stop what's coming, but you can prepare for it. Most people have no idea what's coming, and won't prepare. But you can.

Now is the time to put your affairs in order. If you're underwater in your mortgage, then decide whether you're going to "walk away" or take some other action. If you've embezzled money, then go talk to a lawyer right away.

Don't assume that the economy will save you, because it's only going to get a lot worse. This is something that you know for sure, that few other people do. Take advantage of this knowledge to save yourself and your family. (13-Feb-08) Permanent Link
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