Platform: NinjaTrader (It's a love/hate relationship)
Favorite Futures: CL, TF, 6E
Posts: 176 since May 2010
Thanks: 60 given,
You know how traders who are trapped in a bad position will close their profitable trades to avoid a margin call against a bad trade that they refuse to just close? Well, the banks have got themselves in a similar position. They CAN'T foreclose on their bad loans. Because they operate on margin also (fractional reserve banking), their real assets are only about 10% of the total balances they carry.
9.1% of Americans are now at least 1 monthly payment behind on their mortgage. 48% of all mortgages are underwater. What the banks are doing is foreclosing on their best loans because they can turn around and sell the properties to cover their risk. They are not foreclosing on the underwater mortgages becasue they can not sell these for enough & will be forced to take a loss. This is putting the banks in a very bad situation where the grade of their loans is deteriorating rapidly. If the market rebounds and home values rise enough to cover the bank's risk, then they will be in the clear (Kind of like hoping, wishing and praying a bad trade will turn around... and we all know how that usually works out). If home values decline further, the banks will be facing the option of letting people stay in their homes for free or declaring insolvency. This is already happening in many areas. I already know a few people locally who have not made house payments in over a year and the bank has not and will not foreclose on them becasue their mortgage is severely underwater.
The FDIC had to bail out 140 banks last year for this very reason. They are on-track for that many again this year. The FDIC went bankrupt 15 months ago. (by their own admission) The only solution is for the Treasury to print more money for the Fed buy (huh???) and keep shoveling it into the never-ending mortgage abyss.
But SMILE... they're launching a new season of Survivor next week! OOoo & maybe next year they will have "Survivior: New York" and switch the theme to urban survival.
The following user says Thank You to Slipknot511 for this post: