Feds Come Out Of Coma; Say Mortgage Crisis Worse Than They Thought


It’s like one of those TV shows where after an entire season in which everything goes wrong for the star, he finally awakes to find it was all just a bad dream–everything was just fine!

Only, in this case, what we have are government officials who have been saying repeatedly that the economy is not as bad as we think but now, as if awakening from their own dream, are saying the economy is actually a lot worse than anyone thought!

Jesus. Who wants to watch a show that has an unhappy ending?

Apparently, we all have to watch it and, worse yet, live through it!

What began as a real estate debacle is now a full grown global economic crisis.

A New York Times story out of Washington says that a consensus has been reached among federal officials that , as the Times puts it, “the turmoil plaguing the housing and financial markets is likely to spill deep into 2009…”

Foreclosures? Want to See Foreclosures? You Ain’t Seen Nothin’ Yet!

No sir. Treasury Secretary Henry Paulson is now saying that even if a comprehensive housing relief bill is passed and signed into law, “many of today’s unusually high number of foreclosures are not preventable.” He estimates there will be about two and a half million more foreclosures by the time we get to the New Year.

So, what is being done?

Congress appears on the verge of passing some type of legislation aimed at giving a helping hand to homeowners in trouble, only, according to some experts, that hand only has one finger and my guess is, it is the middle one.

The nonpartisan (can there really be such a thing??) Congressional Budget Office has done some research which is, after all, what it does. And, according to Reuters, it found the pending legislation “would do little to ease the housing crisis.”

That’s just great.

Who Was Watching The Watchers?

Apparently no one was watching them. A review by the Securities and Exchange Commission has concluded that the three main credit rating agencies–Moody’s Investors, Standard & Poor’s and Fitch Ratings–failed in their primary responsibility to make sure there were no conflicts of interest in awarding high ratings to securities that were destined to tank because they were backed by—–subprime mortgages!

Putting The Dots Together

Here’s pretty much what it comes down to–if you are thinking about investing in real estate and are operating on the assumption that things could only get better in the not too distant future, then you operating with a wrong assumption and need to be fully aware that you are before shelling out any of your hard earned but inflation eroded cash.

I have said it before and will say it again: If you do NOT know what you are doing when it comes to real estate investments, or do not have someone with enormous experience guiding your hand, forget about it. Use your money to pay down credit card and other debt. Wait until the wind stops blowing and you can truly evaluate what the damage has been.

Whenever I have said this in the past there is always some real estate broker who gets all flushed and writes something to the effect that this is a golden time to invest in real estate because prices are so low.

Well, you know what….if they think this is such a great time to invest in real estate, ask them to loan you the money and see how fast they stop returning emails!

When federal officials start saying things are really worse than anyone thought, that should make the hairs on your body stand up and fall out.

By any measure, we are in for a very rough flight. And, what do you do during a rough flight? Yep. You stay seated and keep your seat belt on.

Think of this as a sort of metaphor for real estate investing now–only, instead of staying seated, what you want to do is stay solvent by keeping your money out of real estate investing UNLESS YOU KNOW WHAT YOU ARE DOING! (The bold letters are to keep real estate brokers somewhat happy so they won’t write nasty comments.)

About Author

Charles is currently reporting for KNX Radio in Los Angeles, is the co-author of the book No Time To Think, and can be found commenting about the news on his blog, The Feldman Blog, as well as on The Huffington Post.


  1. Chris Lengquist on

    Great article. If you have more than one month’s credit card debt you should be looking to get that down anyway!!!! Before doing anything else.

    People think they can manage consumer debt. But rarely does anyone do it successfully over the long haul. Get that debt down to nothing. Then, with the help of an experienced investor, go for another property. But make right decisions!

  2. This is the web. Link your sources or go home.

    I found this: http://www.mercurynews.com/breakingnews/ci_9819361

    Paulson didn’t say anything remotely like ‘It’s worse than we though.’ That’s a gross mischaracterization of his statements. He basically only made two points:
    1. We’re helping some people; but some others are beyond help.
    2. Taxpayer should not have to absorb preventable, foreseeable losses.

    Some people may think the second point is political, but I think they’re merely statements of the obvious. Further, that’s the exact same stance the Bush administration has taken for months now. There has been NO CHANGE.

    Unless Charles can provide a link to a story showing an actual, admitted change in the current administration’s point of view, I can only assume this is a polemical rant using semi-transparent straw monkeys. The ends (educating readers) do not justify the means (falsehood).

    Worst post on BP yet.

  3. Limbaugh sucks on


    Your response is the “worst post” ever on BP. Are you really DICK Cheney?

    You gotta be one of the first people to blatantly stand up for the ADMINISTRATION, or lack of administration in months, anywhere. What are you smoking?

    If you follow the real news you will notice that many former white house officials as well as the Fed chairman and other expert economists are JUST NOW saying were heading quickly into a recession, with a strong likely hood of a DEEP recession and perhaps DEPRESSION.

  4. Brock—may I suggest you re-read my post, then re-read your comments about it, then re-read this reply, then re-read what you put in quotes, then re-read what I put in quotes, then re-read the Mercury News article you link to, then re-read the New York Times article (which you could have read all on your own, since it was mentioned in the attribution and easy enough to find. However, I agree with you that there should have been a link to it..so now there is….read it…then, re-read it) then re-read the remarks made by Ben Berenanke, then re-read this reply which will have more information that goes directly to your point, then re-read every article printed over the past six months quoting various administration officials and their initial views on how serious this mortgage/credit/housing/crisis reall is, then re-read what these same officials have been saying of late.

    When you have finished re-reading ALL that material, then maybe read part of an editorial in today’s New York Times that I have printed below just for YOU to read:


    It has been about two years since the junk lending of the housing bubble years peaked. Twenty percent of the $3 trillion dollars in mortgage loans made in 2006 were subprime, and another 15 percent were just above that lowest rung on the credit ladder. Since then, millions of all-too-predictable defaults — and the fear of more to come — have metastasized into the worst financial crisis since the Depression and into what is shaping up to be the second recession of the decade.

    But it took the chairman of the Federal Reserve, Ben Bernanke, until Tuesday to announce that the Fed is ready to issue new lending rules to restrict junk mortgages.

    What did I just read? Did it say “it took the chairman of the Federal Reserve, Ben Bernanke, until Tuesday to announce that the Fed is ready to issue new lending rules to restrict junk mortgages.”

    Is that what it said? Let me re-read it. Just a minute. Yes, why, that is exactly what it says—it took till Tuesday, as in yesterday, as in more than a year and half since this mortgage related crisis began.

    Think he did this because he thinks things are getting better and not worse? Yeah? Well, re-read it and get back to me.

    As for Henry Paulson Jr. (his friends call him Henry Paulson Jr. by the way) only a few months ago, Jr. (his mother calls him Jr.) claimed the global economy was pretty healthy (see a January 1, 2008 NYT piece written by Steven R. Weisman).

    Think he may feel differently about this stance now? No? Then go back to the start of this reply and re-read everything that follows.

    By the way, if you have re-read everything as assigned, you will note that although you quote me as saying that Paulson said things are getting worse, I said no such thing. That’s right. Go back. Re-read it and you will see I am right. But he did say, as reported by The Mercury News and others that many foreclosures can’t be prevented. And, gee, know what? That’s what I quote him as saying. Re-read it. You’ll see.

    Rant…what is a rant?

    Can you more clearly define what you mean by rant? Re-read what you wrote and you will see you used that word. Rant. R-A-N-T. Rant.

    Now, I suppose you can call the Declaration of Independence a rant of sorts? I mean, it says all those nasty things about old King George, who was, after all, a bit of a nut job.

    And, I guess the Bill of Rights is a rant,too. I mean, all those annoying claims that people have all these rights? Right?

    So I guess you are making the argument that anything that takes a point of view based on facts is by YOUR definition a RANT (R-A-N-T, Rant).

    Okay, I’ll buy that. Yes, It is a rant, then. Re-read this and you will see I am agreeing with you. Really. Re-read this and you will see I am right.

    I was ranting. Venting. Agitating. Contemplating. Ruminating.

    There, I feel better now. In fact, I feel so good, I think I will go back and re-read this entire reply!


  5. Limbaugh sucks on

    Case in point:

    RE: IndyMac about to IMPLODE!

    Countrywide Imploded. 90% of the big sub prime lenders Imploded. Bear Imploded and YES Indy Mac is/was about the 3rd largest Sub Prime – ALT-A related MASS volume wholesale and retail lender. They have a MASSIVE amount of the sub prime and related assets on their books. So,THIS could this be the beginning of the BIG GOV bail out? Perhaps another “indirect bailout”?? We shall see..

    The thing is that we are operating our “BUSINESS” way in the RED and paying very high interest to OTHER COUNTRIES for survival loans. At some point these countries will either stop lending to us and or they will foreclose as we can’t possibly keep up with these loans. I would say at this point that the U.S. is in “loss mitigation” and or “Forbearance” or could be soon… That’s certainly NOT good.

    Now, as you know the FED who by the way is BROKE as a joke, ie: “ tax payers “ IS NOT supposed to BAIL out PRIVATE banking institutions. In the case of Bear, that “indirectly” IS EXACTLY what they did in a very round about way and that’s NOT a good trend. They can however BAIL OUT FDIC insured Banks such as Indy Mac!! OUCH!

    Essentially almost all of the major banks are NO LONGER doing wholesale, so it’s a matter of time before there are no more mortgage brokers and that good in my opinion. However SCARY as it seems, FHA is back in the sub prime business, a recipe for total long term DISASTER AS they are underwriting at nearly 100% counting GOV backed down payment programs. I read some investor guideline today that said 110% of appraised value! We know to play it safe TODAY that they should NOT go above 80% and ideally 75% with the decline in values nation wide still continuing.

    Back to the private and public banking disaster…
    Keep in mind that “the shareholders” often are YOU and I… And we don’t even know it in many cases .. THAT’s what’s prompting all the FBI and SEC investigations and class action Law Suit’s against investment banks.
    BTW_ FDIC shut down IndyMac, they indirectly conceded to that in their shareholder letter, but called it a totally voluntary decision the day before in the press.

    Back to Wall Street..

    Wall Street investment banks and their Asset Managers lied to the “investors” quite often being retirement funds, insurance companies and investment firms suck as Smith Barney, places where WE walk in and invest or our work place retirement funds invest. They securitized and sold MASS CRAP loan backed assets as “other more stable investments” in deception, when in fact they knew these asset backed securities were CRAP and destined for TOTAL FAILURE!

    I don’t want to be a fatalist, but a lot of the EXPERT economists are predicting a U.S. DEEP recession and perhaps a DEPRESSION very likely up and coming. This includes former and current government economists. Most EXPERTS outside the FED have been screaming very LOUDLY for MONTHS, falling on deaf ears.

    99.999% Iraq war and 1% domestic policy! PERIOD!

    Here’s a RANT. Limbaugh has gone on for years about survival of the fittest. Complaining about all money tax payers are paying for the mentally ill and drug dependent looses. We all know that he is heavily medicated, has mental illness by definition and is a friken drug addict himself!

    The writing is on the wall~

  6. Pingback: Where is the Market Really At | Real Estate Success Link

  7. Jennifer Shamoo on

    Good article. However, I believe buying a home is always a good idea and timing the market is almost imposable. Remember purchasing a home is long-term 10 years or more. Make sure your loan is on a 30 year fixed and nothing lease, if you can’t afford it than that is when you rent instead of buy.

  8. Limbaugh sucks: I wasn’t defending the Administration; I don’t really care to. I was questioning the tone of the post.

    Charles: Thanks for the link. I don’t read the NYT much, and the Mercury News article was what Google could find for me.

    So what if Bernanke restricts exotic loans to weak borrowers? That horse has left the barn. Do you really think Banks are going to be that stupid a second time?

    As for the definition of “rant”, Wikipedia has a good one here:
    I think I used it correctly. I’ve certainly seen worse, but the label fits.

  9. Colin @ Buying Florida Property on

    It really is hard to see why its taken the Fed so long to come up with tighter mortgage rules. And where’s the “restriction” on junk mortgages really going to apply? With the elimination of lenders from the market, the stringent rules that the remaining companies are applying to new loans and the lowball values applied by appraisers these days, there should be very few junk mortgages for a long time!

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