Friday, March 5, 2010
Another wave of US foreclosures and a large overhang of ‘dark capacity’
The author argues that the US government will have to step in over the next couple of years to buy-up almost $1 trillion of mortgages from banks. 25% of US householders' mortgages are under water, the prices for new-build are lower than 7 years ago, and a new crash is expected unless banks take a big haircut on the principal on these loans (i.e. the capital, not just the interest rate, is reduced) - meaning big write-offs for the banks. Carnage for the banks, or carnage for the government.