Outlook for 2008

LIBERTY, January 13, 2008 - If the first 11 days of 2008 are any indication we may be in for a rocky year.

The financial markets including the Dow Jones and the S & P lost roughly 5% of their value in the first 11 days of this year. A slowing economy and financial trouble for banks and mortgage lenders were the reasons sited for the losses in the stock market.

Also Friday, consumer confidence fell to an all-time low on worries about jobs, energy bills and home foreclosures.

In more disturbing news reported in the Saturday Business Section of the Houston Chronicle, we see the first of law suits, sure to followed by others, by City Governments who are suing banks and mortgage lending institutions.

The City of Cleveland Ohio has suffered from the practices of subprime lenders that have led to a huge number of foreclosures in their city. The properties in foreclosure have cost the city money as the city has to board them up to reduce criminal activity in neighbors hoods and has suffered from large reductions in property tax revenue on foreclosed properties as well as a general lowering of property values.

Cleveland, Ohio is suing 21 banks and mortgage companies to recover millions of dollars in lost revenue and expenses from lenders already suffering massive losses themselves.

According to Federal Reserve Chairman, Ben S. Bernanke, “Although poor underwriting and, in some cases, fraud and abusive practices contributed to the high rates of delinquency that we are now seeing in the subprime ARM market, the more fundamental reason for the sharp deterioration in credit quality was the flawed premise on which much subprime ARM lending was based: that house prices would continue to rise rapidly.”

Currently, about 21 percent of subprime ARMs are ninety days or more delinquent, and foreclosure rates are rising sharply according to the Federal Reserve.

The combined affects of the poor lending practices, the resulting foreclosures and losses have caused banks to become, “more restrictive in their lending to firms and households. More-expensive and less-available credit seems likely to impose a measure of financial restraint on economic growth,” according to Bernanke.

by Allen Youngblood