Olivier Perrin – The Brave Little Economist (Switzerland) –
In 2007, millions of American families unable to repay their credit were thrown on sidewalks with no roof over their heads.
Entire neighborhoods empty of life, refractory occupants forcibly dislodged by the police and handing over keys for the most resigned ran daily in newspapers.
10 years later, these images threaten to return to your screens.
An ouster in Baltimore in 2007, © Flickr / Mireille
In question, a US credit mechanism completely aberrant and irrational .
The bill he left to the planet is expensive. Very expensive: a financial and banking crisis that contaminated the world in 2008.
And today, amazing things are happening again in the United States.
In Philadelphia, families become owners without the slightest contribution. In Florida, they buy a charming base with a low contribution and without any income requirement.
Credit has never been easier to obtain and lenders are even fighting each other to attract new investors. At the same time, house prices are rising.
A house in Baltimore was worth $ 240,000 five years ago, it is selling for $ 400,000 today.
So what happened?
In fact, nobody has learned the lesson given by the subprime collapse in 2007.
Not the American households who go into debt again to occupy houses that they will never be able to pay. Not the predatory brokers who always eye on their commissions. Neither do the gangster bankers who flirt with risk and speculation.
And even less the governments that did nothing to tackle the problem at source: change the US debt system.
Result: the crash that looms on the horizon today could eclipse all previous.
The US mortgage is completely absurd.
The mechanism of American credit is very particular, in fact completely absurd for a European.
Imagine that an American bank gives credit to the Parker family. This bank will hold a mortgage on the house until Mr. and Mrs. Parker finish paying the last monthly payment.
If suddenly this family can not make ends meet, because the bank has not been very attentive on their income, and monthly payments increase every month, there is a solution.
The Parker make the keys, the bank recovers the total property of the house, and things stop there.
You read correctly. The family is not prosecuted, it makes the keys and the credit ends. At the bank to fend for reselling the good on the market and recover his bet. To the Parker to find another roof to put on their head.
This is what many people call the “American Real Estate Dream”.
And that’s what makes the nightmare start again today.
Subprime Crisis 2.0
In 2000, subprimes are THE solution for millions of American households without means that hope to become homeowners.
Banks are willing to give them credit by betting on the fact that their home will appreciate. A lot of value.
They say that in case of difficulties, the resale of the property has become more expensive enough to repay the entire credit.
Almost logically, subprime credit is a huge success.
In 2006, 23% of mortgages subscribed are subprime loans .
A year later, everything collapses.
Two guilty parties are denounced at the moment: the stop of the price increase and the raising of the rates by the American Central Bank (EDF).
Monthly payments increase and accumulate for households in arrears. Banks, intractable, claim their due.
They will eventually order the eviction of the occupants and the seizure of the house to be put on the market at a broken price.
The world is stunned by the biggest scandal of the decade.
Between 2007 and 2012, homes lose 30% of their value. In Las Vegas, prices even fall by 80%.
Except that since the world has become completely amnesic.
The Parker family reconnects with its old demons: the indebtedness.
Why would she deprive herself?
Rentals have become overpriced and it is well known: renting is throwing money out the window. With the crisis, the former owners became massively tenants exploding rents. But you have to sleep somewhere.
In addition, thanks to the FED, credit is cheap again and house prices are rising as never before. Even banks take investors by the hand.
For the Parker the equation is simple: continue to live in a tiny rental and overpriced. Or go into debt over 30 years with varying rates to enjoy a big house in the beautiful neighborhoods.
And remember in case of bankruptcy, the resale of the property will cover the loan. Otherwise, the family will have lost nothing at the change.
All the pieces seem to be in place for the story to repeat itself.
In fact, the situation is much worse than in 2008.
More than a third of Americans can no longer meet their basic needs. Rarely, the median income of the middle class decreased by 4% between 2000 and 2014.
6 million homeowners (15% of real estate loans) still can not cope with their debts.
And most importantly, nearly 1 million households have to repay debts equal to twice the current value of their homes.
In a healthy and rational economic system, when you run out of savings, it is difficult, if not impossible, to get a loan.
Not in the United States.
Stock and bond prices are also reaching record highs.
In a globalized world markets have become interdependent and interconnected. Understand, no one runs alone in silence.
The collapse of the American economy will affect the rest of the world as it did in the past … in 2008.
To your good fortune,
PS: Now that you’ve been warned, you can act before it’s too late.