The disastrous policies that led to the spectacular Housing bubble are pulling millions of people under. Today the Washington post has a piece on what is happening with people who are having to sell their homes and still ending up tens and hundreds of thousands of dollars in debt to the banks because their home values are dropping and they find thousands of additional dollars tacked on for the mortgage closing costs. One couple that had to sell because they are divorcing and neither can afford the current mortgage are representative of what this policy has created for so many Americans.
With an annual salary of $70,000, he does not have enough money for his share of the amount he and his wife will end up owing the bank. So he has asked the bank to forgive the debt, despite the tax implications. If the bank chooses to demand a check, he said he would take out another loan to cover it.
"This has destroyed me," he said.
One of my friends lost their home in a flood when she was a child. The insurance covered half the cost of the house leaving the family with nothing when the mortgage was paid off. Her dad was never able to recover from the failure and finally killed himself when he decided trying to carry on was just too hard.
We will probably see many, many Americans find themselves believing their lives and their dreams for a better future have been destroyed. All because the Bush economy was purposely based on a Ponzi scheme where the rich hold all the cards and the people who should be able to depend on government standing on their side were sold down the river.
Don't forget that one of the reasons these immoral loans became so popular was because Alan Greenspan thought people should manage their own risk and someone changed the regulations so banks could maximize their profits. Here's how I described last year.
So how did it happen that so many Americans are at risk of losing their homes? It turns out that under Bush’s watch financial regulators changed the rules of what was considered acceptable business practice. Government regulations were rewritten to say it was okay for financial lenders to claim as revenue the amount of the highest payment option for the option ARMS even if the homeowner paid the lowest amount. The changes allowed mortgage holders to record huge profits on revenue that might never be realized. James Grant of Grant’s Interest Rate Observer wrote that the negative-amortization accounting is “frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity.”
Bush's economy was built on believing there is wealth to be found in finding suckers to fleece.