The Reality of the Mortgage Market

Jane Galt is amusing, this morning:

This morning I saw that Paul Krugman had written a column on the little difficulties we’re currently having with our financial markets. And I thought, before I even opened it “You know, I bet that somehow, some way, this is the fault of the Bush administration.” I wasn’t sure that Mr Krugman would actually accuse George Bush of sneaking out of the White House at night to suck liquidity from the markets using his rich friends’ ridiculously expensive Miele vacuum cleaners. But I was sure it would be something.

Ta-daa!  You should worry about the crisis because, that’s right, the Bush administration will muck it up.

Look, I’m not an economist.  I didn’t even stay in the Holiday Inn last night.  But instead of taking the word of those panicking, I actually had time to run the numbers, for myself. After running those numbers, for myself, I’ve come to the conclusion that the panic is unfounded. It is also, I don’t doubt, politically motivated.  (Consider, who is that’s reporting this stuff to us .  Is this the same press that has been trying to poke a hole in the Bush administration for the last seven years?  As Brother John Bates said: “I think it be.”)

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I mean,as a preface, you’re not going to expect anything less than this from Krugman, are you, really? The fact of the matter is is that he is always been more of a partisan hack than an economic one.  No, admittedly, he is a hack in both worlds. His goals, however have always been clear. He’s always been transparently partisan.
The fact of the matter was and remains that the amount of the mortgage market that we’re talking about is so small as to be ignored, particularly when a Democrat is in the White House.  I will guarantee you under those conditions, Krugman would be as silent as the grave.  Make no mistake, political partisanship is where this particular panic is coming from.  In the end that’s the only thing Krugman’s ever been good at.

Admittedly, Krugman is not the only person involved with the spreading of this panic.  He simply happens to be a convenient target at the moment.  However, he is not alone.

But let’s talk about reality.  (Wow… reality… what a concept!)

The fact remains, that 96% of the mortgage market is at this point, considered stable, and not at risk. Subprime loans, by my read, do not make up that remaining 4%. (There are a portion of mortgages which are not subprime which are also at risk. This is normal, gang… not to worry.) The remainder are higher risk loans by definition, and the institutions making those loans knew that going in.  Forgive me if I don’t panic over loans which are basically no better than speculations, going bad.  There is always some risk involved.  That’s the name of the game.  But how did they get there?  Such loans, interestingly enough,are being encouraged by the Federal government in the interests of “consumer fairness”.  I could blow an entire paragraph and a half as regards governmental intervention on such matters, but I will leave that to the reader.
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We should, for the moment, rather than getting into the fundamentals, stick to identifying the scope of the problem.  Let’s put this in some degree of perspective, shall we?  At the moment, there are something along the lines of 44 to 45 million mortgages in the U.S..  Of those, less than 14% of them are in the subprime category.  Of those, something on the order of a little over 10% are delinquent on payments.  Of those, the majority are in the process of working problems through their local banking institutions.  So, at the bottom line, only around 6 tenths of a percentage point of the total mortgage market is currently in foreclosure. How much of a swing caused all this panic? Well, we were at around 5 tenths of one percent last year at this time, so in all, the answer is about one tenth of one percent. The problem is not nearly as large as the usual suspects are making it.  A swing of 1/10 of 1%, is not cataclysmic.  Yet, that’s how the hacks are projecting it. When someone blows something this far out of proportion , blowing something this small into a major panic, you can bet they have something to gain by that panic occurring.
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Blaming three digit swings in the Dow on these matters is fairly easy for the hacks involved.  Then again, the three digit swings in the Dow are not all that hard to produce ; there have been 36 of them since the beginning of the year, and none of the reasons involved were earthshaking then, either. More than any other factor, those large swings have to do with the fact that the Dow is so much larger in the first place.  The numbers sound impressive, but when taken as a percentage of change, they’re not really any larger than previous corrections of the market, when the Dow was below 10,000.During that time period, this three digit swing, would probably have been considered nothing more than a market correction, which indeed is exactly what it is.

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Of course, If you create the panic, and create that swing, and if it’s hyped the right way there are political and legislative gains to be made off the resulting investor panic. To say nothing of financial gains, to the savvy investor. (Personally, I was busy buying, myself.  Some fairly decent bargains out there at the end of last week… that’s the name of the game, folks.) I submit we are seeing precisely that, just now.

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The reaction of Bernakie and company can only be described as an attempt to calm the water.  Functionally, their efforts would have no effect at all.  Then again, the panic itself wasn’t based in the real world, either. So, it will likely have the desired effect.
In the end, this whole situation will have blown over, inside of 72 hours.  And, we will have gone on to the next crisis.  (Which likely will be speculation from the rabid left, that something must be deathly wrong at the white house, or Karl Rove wouldn’t have left.  Ignoring of course, that most of the Clinton administration had left at this relative point in time, too…. but I digress)

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Those people screaming about “allowing ” the banks to go into such rarefied territory, and those screaming even louder that the Federal government should step in with money to back up those risky loans, should consider that prohibiting banks from engaging in business in that fairly risky sector, will have racial, social and political repercussions…. and certainly the Federal government stepping in with a bailout, will create a panic all its own.  But, of course, it will project the Democrat run Congress, as the saviors of “the poor” yet again.  And I wonder, if that isn’t the goal of causing the panic, in the first place.  After all, as Krugman found long ago… you can always blame the Bush administration for the fallout, either way.