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So, now IndyMac fails it’s customers. Who is next? There will definitely be more banks falling, and with BusinessWeeks recent article, “The Next Real Estate Crisis” predicting another flood of foreclosures, what is going to happen to the housing market. What is going to happen to the economy? I think that we are in a recession and will eventually get to a depression. I hate to be pessimistic, but I truly believe that there are too many factors involved and that the momentum is too strong to stop. I do not think that government can stop this decline, especially since they are having huge deficits due to smaller property tax payments (very much smaller). According to BusinessWeek, by April, 2009, hundreds of thousands of option ARM mortgages will begin resetting, bringing on a fresh wave of foreclosures. I mentioned in one of my previous writings that I questioned if there will be a snowball effect. Now I am sure. There are too many factors involved for the economy as well as the housing market to stop their decline. Everything effects something else that pushes the economy downward. For example, IndyMac’s failure lead to the decline of several banks stocks. As CNNMoney.com stated in their article “After IndyMac’s Failure, which bank could be next?” “Stocks in nearly all the nation’s banks
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were clobbered Monday as the market bet that there will be more failures.” They went on to say, “Stocks that were hit hardest Monday included First Horizon National Corp., which operated in the Southern United States; Zions Bancorp, located in Utah and Idaho; and Washington Mutual Inc., the nations largest savings and loan. Stocks of bigger banks such as Wachovia Corp, Citigroup Inc., Bank of America Corp., and Wells Fargo & Co., also tumbled.” People are starting to get that nervous feeling. Let’s be honest, several of us do not trust banks, government, and other institutions…and why should we? Ask the several largely invested customers of IndyMac that will only receive $.50 on the dollar for their accounts over $100k. See what they tell you about their confidence in the banking and governmental institutions. How does that affect the economy and banks? The more people that withdraw their money from banks, the less money the banks have to make money. This will make the unstable banks more likely to go under. The more that go under, the more people want to take their money out. The more these situations increase, the lower the banks stocks go. You see the downward cycle. The banks always respond by stating that they will be able to cope with the housing crisis. CNNMoney.com stated in their article “After IndyMac’s Failure, which
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bank could be next?” that “Washington Mutual tried to reassure investors Monday by saying it has enough cash available tosurvive tough conditions.” So, what constitutes as “tough conditions”? Does “tough conditions” fall short of “The Next Real Estate Crisis”? As many of us who read articles written by those who stood to gain from home sales during the initial period of foreclosures, we saw articles that stated that the prices would not decline and that there will be no burst of the bubble, but that was sure a load of crap. So, why would we believe this now? I don’t want to alarm anyone, but how bad is this housing market going to get? And how badly is it going to affect the economy? Let’s be honest, if banks start going down left and right, and people try to get their money out, how much can the banks cover? I know that most accounts are covered by the FDIC, but how much money does the government have to cover it… I mean that they will share? To say it bluntly, the economy is in for a very bumpy ride and, as Washington Mutual put it, “tough conditions”…very tough conditions. I personally do not intend on relying on the government, banks, or the drive by sales guy selling the miracle potion. We must make educated decisions to protect our finances and our way of life.
Article by
Brett Duncan-Creger
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