Must deal with foreclosures
We are entering a recession like nothing that had been seen since the crash of 1929. It is galloping along like the sixth horseman of the apocalypse. The protracted malaise might last months or years depending on governmental economic policies.
The change of the executive branch in Washington has been a good portent, and the first step in the right direction, as far as consumer psychology is concerned. It has been agreed that the housing crisis is at the core of the present predicament.
Starting as a real estate bubble the beginning of 2004, it has morphed into a worldwide debacle. Homeowners have been impoverished by the fall in equities. Others have lost their homes, their most precious asset. Thousands can't sell their homes because there are no buyers, and credit is under a choke hold.
Retirees have lost or seen their savings reduced to half or less.
Consequently, people have lost their ability to spend and save, struggling to cover their primary needs of food and shelter. Workers are losing their jobs; others are threatened with the specter of unemployment. Consumer morale is touching bottom.
At the national level, almost all countries have seen their stock exchanges shaken and devalued to unprecedented levels. Factories in China and elsewhere are closing or idling because of a lack of orders. Impoverished societies are on the brink of starvation.
Many alternatives have been discussed at the local and the international lever. The developed countries have made billions of dollars available to save the sinking credit institution, and that is another step in the right direction.
Economic summits have been held. However, uncertainty is the name of the game. It shows in the roller coaster swings of the volatile indexes. American and world stock markets don't see an outlet in the horizon because, in reality, there's no reason for optimism, no light at the end of the tunnel.
The only viable alternative is to address the core of the problem: The fact that homes have lost one half or more of their value in the last three years with the consequent disappearance of equity.
It was unknown to most economists that this inconspicuous piggy bank - home equity - was the driving motor behind all consumer activity and that its lack thereof would deal a fatal blow to world trade and banking.
Governments have to step in and, regardless of the cost, stop home foreclosures cold. There is no sense in assigning guilt. Whether home buyers were foolish to buy beyond their means or unscrupulous, greedy lenders went tossing out investors' funds like drunken sailors, we are beyond that.
The only viable alternative now is to stop the foreclosure process with a two-fold attack: Re-sell the houses back to the borrowers at an actual appraised value regardless of the purchase price and let them keep the house and start building up their equity; and secondly, renegotiate a new loan with the lender reflecting the discounted balance. The government must make up part of the losses sustained by the homebuyer and the lender.
It is in the interest of all parties to avoid foreclosure at all costs even if none makes any money at the present time. There is no other way. The present home market is mayhem. Appraising homes now is like navigating in a whirlpool. Uncertainty is the name of the game. Foreclosures and auctions are determinants of values now. There is little consensus.
This has to stop, and then, we'll be on the solid road to recovery.
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Mike Morell is an author and Yuma resident who holds a master's degree in business from the University of California-UCLA.
