Despite all the bad buzz about subprime mortgages, Ben Stein says the economy is strong and that the amount of foreclosures is small in relative terms.
Perspective is a great thing. It's especially good where money and the stock market are concerned.
Recently, there has been large movement, mostly down, as the stock market reacts to a large number of foreclosures on homes in the so-called "subprime" mortgage area. This is the place where higher risk borrowers got loans during the housing boom of the last three or four years. Now, to people who actually made those loans, it's a scary phenomenon to see those loans default, and the companies that made those loans are in real trouble.
But here is where perspective comes in, and is such a lovely thing: The U.S. mortgage market is immensely large, spectacularly large. Total foreclosures are a large amount in dollar terms, but a tiny amount in percentage terms. Foreclosures are now about 1 percent of loans. The lenders will sell the houses and recover at least fifty per cent of the value. That means the total loss may be about ½ of one percent of the mortgages made and probably less, and a lot of it is insured. This is an absolutely trivial number in the context of a $14 trillion economy with net wealth in the realm of $60 trillion.
This whole subprime mortgage mess is just an excuse for the gunslingers and river boat gamblers on Wall Street to use their tricks to move markets and make money. The economy is still very strong. The most cagey players on Wall Street like Goldman Sachs are now trying to buy - not sell - as much distressed merchandise in the mortgage area as they can. This is a good clue about where the smart money is going.
You can panic if you enjoy being panicky. But this will all blow over and the people who buy now, in due time, will be glad they did.
Anyway, that's my perspective.
;)
;)
