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Thursday, May 7, 2009
According to this New York Times article, U.S. Says Ailing Banks Need $75 Billion, US Banks need $75 Billion in additional capital in order to pass the government stress tests and this is good news!? First, it is not good news. It means that US banks need a lot of additional capital. Second, it is not even accurate. According to Gary Shilling we should not be trusting the rosy government reports as they are really meant as a PR piece then they are a measure of the banks' financial condition. I agree. The government stress tests are a joke. Regardless of these phony stress tests most large US Banks are insolvent.
I have read many articles that are stating facts that the mainstream media is not covering. The most important one is that commercial real estate loans are defaulting at an alarming rate. While the mainstream media continues to debate whether or not the residential housing bust has reached it bottom they continue to ignore the greater problem of bad commercial real estate loans. My prediction is that the commercial real estate loan defaults will finish the bank killing that the residential bubble bursting started. I believe that most, if not all, of the major national banks (think Wachovia, Bank of America, Wells Fargo, etc.) will need to be nationalized within 12 months.
The expected massive bank failures will further curtail lending (including home mortgages) and result in further softening of home prices, particularly in over-built areas of the US.
According to this New York Times article, Sweetening the Pot for Home Buyers, the $8,000 Federal Tax Credit for first time home buyers created by the Obama administration will not have much of an impact (I believe I told you this previously) due to most first time buyers not having enough money for a down payment and to cover closing costs. The article trumpets a Missouri plan that allows home buyers to borrow that $8,000 to buy that home and then to repay it when they receive the tax credit. In my opinion, this is a recipe for more disaster. The problem was and is that TOO MANY FINANCIALLY UNQUALIFIED PEOPLE PURCHASED HOMES. Offering this "loan" will only exacerbate the problem. If a person cannot find a way to save $8,000 to buy a home then they should not be buying a home. What happens when the roof leaks, or heating system needs replacement, etc.? These "home buyers" do not save money, they spend. That is why they could not even put together a measly sum like $8,000 to buy a home. The problem is that we have turned owning a home from a privilege into an entitlement. When will we learn!?
My prediction is that if this Missouri program gains traction we will see increased rates of foreclosures for these "home buyers".