Housing Market Causes Big Stock Drop
by Ian Mosley
The Dow Jones stock market took its worst plunge in five years last week losing 585 points (rebounding 93 points Monday then dropping 146 Tuesday) suggesting the economy is shaky at best. Once again the housing market was a big source of concern. Increasingly the housing market is beginning to resemble a Pyramid or “Ponzi Scheme.” Imagine a completely worthless stock which shoots up to stratospheric heights and then collapses. The last people holding the stock lose big time, but the people who sell up until the last minute make money. While houses do have some intrinsic value, a $200,000 house priced at $600,000 is two-thirds Ponzi Scheme.
According to Yahoo News, “Countrywide Financial Corp. said Tuesday its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults among the most creditworthy borrowers. The huge mortgage lender was forced to take impairment charges as it braced for the possibility of more people failing to make their mortgage payments. Countrywide also said the market will become increasingly challenging as loan production subsides while lenders compete with one another more fiercely.”
In other words, the Great Housing Boom of the early 2000s is finally over, the free-fall is beginning, and a lot of these parasitic little mortgage companies you see advertised on TV and who send you spam e-mails all the time may soon be gone. (more…)