We are now facing the worst economic disaster in history — worse even than the Great Depression. I’ve warned for two years now that the real estate picture is far worse than most Americans understand. The foreclosure disaster we’ve seen is only the tip of the iceberg.
At the moment, 30 percent of all mortgages across the country are underwater. The so-called “shadow inventory” (homes in foreclosure or far behind on payments) is already 11 million homes and growing. Millions of additional homes will soon fall into foreclosure.
Yet the bigger disaster is the commercial real estate market. Banks have been hiding this tragedy by extending loans on properties that are no longer worth 10 cents on the dollar. Many commercial properties have lost most or all of their tenants, and haven’t made mortgage payments in months, if not years.
Make no mistake: Commercial real estate loans — shopping centers, malls, strip malls, office buildings — will face foreclosure in unimaginable numbers over the next five years. Each new wave will cripple the economy.
But you haven’t heard the worst of it yet. None of this is what will actually plunge America and the world into the Great Depression II. The real disaster unfolded late last week as it became clear that the banks don’t even hold title to the notes of the homes in their portfolio. That means they have no legal right to foreclose. Does anyone understand the implications of this new revelation?
First banks will have to halt foreclosures across the country (as many have), thereby further damaging the market.
Then, here come the class-action lawyers. The biggest banks in America — already holding trillions in bad debt — will now have to spend billions more on legal fees to fight lawsuits by state attorneys general, class-action legal vultures representing homeowners facing foreclosure, and worst of all, past mortgage holders who were foreclosed.
If banks can’t prove title, many homeowners from coast to coast will keep living in their homes without paying a dime. Banks will lose billions. Some homeowners might live forever more without mortgage payments.
Now think of the millions of homes that have already been foreclosed. Suddenly all of these ex-homeowners will sue the banks, asking them to prove they held the proper legal title when they foreclosed. Courts could award them damages in the millions each, plus their old houses back.
But wait. It gets worse.
How about the current homeowners living in those foreclosed houses they bought from the banks? Will they have to return the homes? Real estate values could drop another 20 percent to 30 percent from today’s lows. The real estate market could take decades — instead of years – to recover.
The result of this unimaginable mess? The entire United States banking system is bankrupt. Insolvent. Your bank is broke. Everyone’s bank. And as real estate goes down another 20 percent to 30 percent, their portfolios grow even more worthless. (Is there a term for “bankruptcy squared”?) They are facing ruin. Their books are cooked — whatever real estate is on them is worthless. But heck, who cares? They can’t prove they own it anyway. And to make matters worse, all the money in all the banks in America isn’t enough to pay the legal fees and damage awards the banks now face. It’s all one big vicious cycle that feeds upon itself.
And as things get worse, and property values sink further, fewer and fewer homeowners will continue to make their mortgage payments. Why should I continue to pay, if my neighbors and friends are no longer paying? Soon the entire system will unravel.
And guess who is on the hook? American taxpayers.
Are you getting that sinking feeling? Over the coming months, the entire banking system will be brought to its knees. Only the U.S. government is big enough to bail it out. But the federal government is broke, too. We owe more than $13 trillion in national debt, and more than $100 trillion in debt plus unfunded liabilities. States, counties and cities are broke and looking to the federal government to save them.
This is what you call a never-ending cycle of economic disaster.
This tragedy of epic proportions is caused by government, not private industry. Government has over-seen it all, and mismanaged it all. Government inflated the bubble with low interest rates, Federal Reserve printing presses and mandates for banks to loan to people with no credit, no way to prove income, and no way to ever repay the loans — in many cases based on affirmative action and the color of their skin. And the financial institutions made the loans without a care in the world, because Uncle Sam was guaranteeing it all.
Government caused this entire catastrophe. Remember that on Nov. 2 when you walk into that voting booth. Message to The New York Times: This just might be why the Tea Party voters are angry and frightened to death for the future of America and future generations of their children and grandchildren.
The result will be one of the greatest landslides in U.S. political history. My advice: V.E.T.O. — Vote Every one of Them Out.
Wayne Allyn Root was the Libertarian candidate for vice president in 2010. He writes from Henderson.