Mortgage Meltdown Contagion

Anyone who has read this site from its inception knows that I have been saying that the housing market turmoil would be felt throughout the economy. Now economists are beginning to see it my way.

The outlook for the housing market looks even bleaker than it did a week ago. Last Friday we reported that foreclosures were skyrocketing, home prices falling and recovery forecasts were being scaled back.

And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy.

The U.S. government continues to downplay the risk of the meltdown spreading. Treasury Secretary Henry Paulson has said the effects are largely contained.

This is what happens when only those on upper income levels decide what will happen for the rest of us. I am not an economist but could see the writing on the wall. These people live in a fantasy world where money is never an issue. That is not the reality for the majority of the American population. How could anyone really believe that a housing market in free fall and a mortgage industry crumbling before our eyes would not have an effect on the broader economy?

When the Federal Reserve met this week, the central bank said that inflation is the greatest threat to the economy, not the mortgage crisis.

And in late July, William Poole, the president of the St. Louis Federal Reserve branch, said, "Unless the pressure becomes much more severe, the problems would not impact consumer spending or credit quality more generally."

Yet, Countrywide Financial, the nation's largest mortgage lender by volume, reported Thursday that "unprecedented disruptions" in the mortgage market were forcing it to cut way back on the number of loans it was securitizing and selling in the secondary markets.

If I could see the writing on the wall and I am just a lowly blogger with a financial service background why didn't the experts see this coming?

I have said this before but we are looking at the start of a perfect storm economically that will sweep the Democrats into power in 2008 in both houses of Congress as well as the Presidency. Unfortunately the pain that will be felt by the lower and middle classes will be widespread. As usual the wealthy will weather the storm just fine.