Marvin Clark

The Forthcoming Prime Mortgage Meltdown

Seth, this is a great article. You so succinctly state the problem I've been describing for over a year; it's a math thing. In my article of January this year, I called on the government to self-refinance any mortgage at 4% fixed for 30 years, at current market value. Whatever portion of the mortgage underwater, spread it over 30 years onto the borrowers' taxes. And, make the new loan assumable.

Home owners would have lower payments with more disposable income, assumable mortgages will help stabilizes home prices, and the banks could eliminate loans from their books one by one at 100%; no need for cram-downs, modifications, no upset investors taking a hit on CMOs, the preservation of contract law, etc.
But instead of solving the problem from the bottom up, they chose a top-down solution - give money to the banks and hope they do the right thing.
How is that turning out?

This Chart Can Kill Any Bull

Earnings will not expand going forward. We are still de-leveraging and continue to do so for the next 2 to 3 years.