Second Mortgage Disaster Looming On The Horizon

When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.

As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you're beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what's coming.

One of the best guides to the danger ahead is Whitney Tilson. He's an investment fund manager who has made such a name for himself recently that investors, who manage about $10 billion, gathered to hear him last week. Tilson saw, a year ago, that sub-prime mortgages were just the start.

"We had the greatest asset bubble in history and now that bubble is bursting. The single biggest piece of the bubble is the U.S. mortgage market and we're probably about halfway through the unwinding and bursting of the bubble," Tilson explains. "It may seem like all the carnage out there, we must be almost finished. But there's still a lot of pain to come in terms of write-downs and losses that have yet to be recognized."

Keep reading here.

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Watch the video report from CBS below.

Comments

[oneblackvote]

I saw it coming. Really. In California people at my job were buying 300,000-500,00 homes when I knew they couldn't afford it. The price of houses in California jumped from 60,000 to 300,00 in a few years. It was out of control and everybody was taking the bait. It was crazy. Now we have blocks of homes empty. Blocks of condos, empty. So if you ever wanted to buy a mansion in California, you can get one for 150,000. It's not funny, but it's true. Now people are losing their jobs, and have been in their homes for years are losing their homes. Not their fault, at all. Old money losing their homes. I feel really bad about it and hope that Obama helps all Americans.

[dadw5boys]

$ 9 TRILLION DOLLARS OF COMMERICAL LOANS !

[dadw5boys]

STII TO COME !!!

[Tom95134]

You got that right. I wonder how many will be sold to the insurance companies. Many are setting vacant and some are already being vandalized.

[satyriasis]

The next few years will be difficult. We'll make if the Green Revolution comes to fruition.

America may not be the hub of finance anymore but foreigners will still invest here. If not by choice, then by the threat of our missiles being dropped on their heads. Hey I don't like it but our empire isn't just gonna wither away and everyone knows it.

[handyallen1]

dont count on it

[geobushono]

What the hell are you smoking? You're about to beome POOR......betcha didn't think that would happen to you.......you're one of the good people.....and you voted for change....you should have voted for retribution..........oh well you'll get another chance in 2012.
create a compost pile, and you can try to sell it......that'll be the green revolution in Amerika.

[drkazmd65]

Denial is not just a big river that Runs through Sudan and Egypt,....

[WorldGoneWild]

Yep people, it's back to reading by candlelight and canning and growing your own food again. I have to dust off my sewing machine. I knew that Home Ec class 25 yrs ago was good for something. Thanks goodness for my 86 yr old mother and her brothers and sisters that lived through the depression because while they are still alive I can take notes on how to live on pennies a day.

[Venom5809]

My best friend has already started canning tomatoes.
His grandmother lived through the Depression and she saw this coming about two to three years ago.
He and I listened to her and we protected ourselves and we are just fine.
If the parents of a lot of these kids did not give their kids down payments for these McMansions and encourage them to buy them, half of these problems would not have happened.
I can't count how many times you would see a young couple on House Hunters that lived in a 2500 square foot house are about to have a child and decide they needed to buy a bigger house.
Or people that think that they needed a $5000 stove and a $6000 fridge and they don't even cook.
The only time you needed those things is if you have a restaurant, that is why they are called commercial grade.

[sonoffestus]

Yeah, don't you just love those "show " kitchens. Everyone needs at least two ovens, don't you think? And of course a wine fridge, can't be putting a bottle of good wine next to the lettuce. Two ovens yeah, that's a real necessity. Remember the days when folks aspired to be middle class?................ Oh yeah, that's now.

[RButler]

On all those home shows with people remodeling or buying a new house, I have never seen a couple that I would want to know. There is something so unattractive when 2 people get together to buy stuff. The comment about the commercial grade appliances illustrates it well. The show will feature the wife chopping a carrot like it's her first time. "Oh, I can put my exercise equipment here". "I can use this room for gift wrapping and crafts" "This room for when my mother visits every other year". etc., etc. etc.

[Pavane]

Pennies a day? You have no mortage or rent? No electric, gas or water blls? No car insurance and so on?

I sew ... everything from clothes to draperies. Sewing - fabrics, patterns and supplies - can be quite expensive, perhaps more so than many ready-made retail items. I note your desire for nostolgia, but the reality demands time, skill and money. Not pennies.

Same with gardening. Herbs are easy to grow, but most garden crops require not only time and labor, but also a researched knowledge of geography, sun, soil depth and content, pruning and wintering. Many first year crops like potted strawberries yeild very little. Canning is a real art too, time consuming and expensive. Bless you, but in none of this can you live on pennies a day.

[geobushono]

......and you need land to have a garden.....anybody remember Vietnamization?
a major strategy in Vietnam , was to move the farmers off the land....now their survival depended on the largess of Saigon/Washington.

[texastrixie]

The other big problem is WATER. You can't grow anything without a lot of watering, and the middle of the country, from almost the Canadian to Mexico borders, is in the middle of a drought. My husband hates for me to even plant flower seeds since the plants have to be watered. Growing your own food can be accomplished, but it may not be much cheaper than just buying only what is on sale. Luckily, we have a sort of cheap knock-off version of Whole Foods in this town. The produce is CHEAP. I haven't talked to my husband about shopping there, but if he is laid off, that's where we'll be. You can eat fairly cheaply on beans, rice, and a little meat/chicken and whatever veggies you can afford. It is boring, but it can be done. Its also healthier, and as prices rise, people will begin to give up all those calorie-laden chips, drinks, etc.

[Tulka2]

How many people like my husband and myself are there? We have no credit card debt. We have been in the same house for 12 years. We owe about 80 grand, but how will we pay when my husband has been laid off? We are living on savings together with unemployment. No one wants to hire two people in their sixties... one of whom has had cancer twice.

It doesn' matter what kind of reasonable mortgage you have if you don't have a job to pay it off.

No one even talks about this "wave" of foreclosures. We figure we have about four months left. Then what?

[jsarets]

Move in with your children. That's the way it worked before industrialization: extended families supported by one or maybe two bread-winners. Pull the family back together, consolidate your resources into one household operation, and leverage the economies of sharing and scale wherever possible.

[cdnnewsjunky]

good advice!

[yappnmutt]

practically every penny of gdp growth since the mid 90s is directly or indirectly related to leverage. the leverage is gone and there is nothing on the horizon to replace it. the great unwind will return the stock market to at least pre irrational exuberance level. a return to the prosperity of 2003(let alone 2000) will not return for a generation. helicopter ben has decided to deploy the helicopters so the situation may be worsened by hyper inflation, a hyper inflated depression, the worst of all vicious animals. good luck everyone. we are all gonna need it.

[Free2Speak]

And you have Pelosi and Reid talking about automakers getting a haircut while the bankers rob mainstreet in broad daylight.The brokers and bankers all collected their fees and congress has allowed the execs to collect their bonuses with loop holes you can drive a truck through.Toothless oversight making a mockery out of the system.As I said before this Bernard Madoff scandal is just a distraction from the trillions these wallstreet barrons are making off with.

[Venom5809]

I have no sympathy for these people.
I am in the real estate business and I have watched these people buy properties they had no hope of affording so that they could compete with each other.
I own all of my properties outright and I own an S class Benz outright.
All of these landscapers, electricians and people in their 20's wanted to live like they were big shots.
My parents generation never built or bought a big house until they were in their middle age.
My father is a physician and he did not buy a big house until he was 50.
This was an instant gratification society and it came back to bite them.
I am probably going to move my money out of this country because I know that with the situation as dire as it is, the people and the government will find creative ways to take it from the people who have things and have earned it.
Beware.

[Pavane]

All right then. But where should people live? What affordable housing is there? I simply do not believe your claim that people bought houses they could ill afford merely because they wanted to "compete with each other." Most people I know bought a home because they sought a place of their own in which to live. Renting is not only financially wasteful, it is expensive too. I think much of your contempt is misplaced.

[Venom5809]

Really, are you in my business?
How can you dispute my claim?
First of all I never mentioned affordable housing.
I have one couple that has a 10,000 square foot home with 4 floors, two kitchens, a dance floor and 6 jacuzzis and it is just the two of them.
Or perhaps the other couple that redid their kitchen every year because his wife wanted to have the newest.
Or the couple that bought the $500,000 house with just $20,000 down and then kept the $250,000 house they already owned because the husband wanted to give his mistress that he had a child with a nice house to live in. He lost both by the way.
If you had rented, you would have little to no money.
I live in Michigan which did not lose much value in the homes because they never went up that much. One of the top neighborhoods here in town where the average house price is $500,000, every single home resale in that neighborhood lost on average $100,000 before the housing and market crash.
You need to learn economics. A $300,000 house after 15 years of paying for it would owe about $200,000, and that is not factoring in a housing crash.
I do this for a living and that whole renting is a financial waste is a fallacy, which has clearly been proven.

[DC]

"Renting is not only financially wasteful, it is expensive too. "

Your statement makes no sense, especially when you can rent a better home for less that the cost of carrying a mortgage on what is a declining asset.

[TXfemmom]

Greed, war, plunder, and more greed.

[munki]

Honestly...
Do Americans help Americans?
If so, what is going on here?
Our government, our CEO/executives and those speculative investors plus AIG...
scooping and making us into a tank... why Americans cannot help each other?
NOT ripping each other... so sad... where is our value????

[racom]

You are joking, right?

[unite4change]

The greed is unfathomable. Our politicians are our servants, yet, all they seem to serve is themselves. Most of them come out of congress millionaires. It's like The Godfather II when the Senator told Michael he didn't like his kind. The Senator said, "You come around in your silk suits and greasy hair trying to pass yourself off as respectable (all the while trying to get $250,000 from Michael)" and Michael told the Senator they were both a part of the same hypocrisy. I fully agree with Michael, our politicians are in it for what they can get while robbing the American people blind. Wall Street kept the profits they have been making for years. While the American taxpayers are forced to bailout all the countries they defrauded. And, don't forget all the billions being squandered in Iraq. The people we elected as our representatives in Washington have failed us all badly.

[Eriq]

Thanks for asking that question...
No, Americans are not helping each other right now. It used to be an American value, and one that made this country the world leader. Now we are living the reality of the selfish, self-obsessed children of the generations of people who believed in lending a hand when needed--even though the U.S.A. has never had a socialized government, it has been our way of life in past times--who only think about how rich and powerful they would like to be. Americans have forgotten that we are powerful only when we rely upon each other and help each other.

What a sad time we are witnessing... and causing.

[lafrance]

I cannot see how we don't end up facing close to or dip into a depression by the time it peaks.
No jobs, another wave of foreclosures and the credit cards have not even started to crash yet.
I read where Obama took on all the heavies he could like Summers and Giethner, ect., (who have radically changed their views from the 90s over the last decade) because he is really worried over what is coming in the economy.
He must know that we are looking at a second wave and it's going to get ugly.

[drkazmd65]

Obama is a smart guy. He listens and thinks A LOT more than he talks. He knew early on (and explained why) war in Iraq was a bad idea. He knew early on that a Democrat primary could be won with a strong ground game in 50 states. He knows enough to listen to the financial experts when a significant number of them say - we are in for a sh*tstorm.

Even if the worse-case scenarios about what happens to our economy are overblown,... what harm does it to overprepare for a problem?

Overpreparation (if not done to excess) would be a nice change of pace from what 8 years of G.W. Bush has brought us.

"The general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to w in or lose."
-Sun Tzu, the Art of War

[Omidal]

They make it sound Apocalyptic. Things can turn around in two years if real jobs are created in America to replace the jobs lost under president Bush. The consumers today do not have confidence in the market. So, with a new Administration and new plan for the economy, consumers may regain their confidence back and start spending again. For this to happen, people must feel secured about their last dollar. The first of Maslow Hierarchy of Needs must be met first. People will not consume, buy luxury items or even buy houses in this market condition when the primary condition has not been met.

All this problem is caused mostly by the Bush's tax cut policy for the wealthy, not so much of the deregulation period. That tax cut certainly exacerbate the market and produced the downturn we see now. Some people have lots of money in their banks and not spending it fast enough, while the rest of consumers who would otherwise spend the money to boost the economy does not have the money.

[LeeCalif]

Wrong.

[Venom5809]

It will be Apocalyptic.
I suggest you take a trip out to Michigan.
I live near Flint Michigan in an affluent area and we have entire mall complexes that are empty and large restaurants that have closed like Don Pablos, Chi Chis, Bennigans etc.
In Flint, on the main road, every single mall complex is up for sale.
The commercial real estate crash has yet to hit and it is going to be awful.
Bloomfield Hills is not looking so great and I was in downtown Detroit this Saturday and it was completely empty. Five cars max on the streets and no one walking.
I have never seen a major metropolitan town completely empty on a Saturday afternoon.

[Eriq]

Right!
And that's why "We, the People" must arrest Bush, try him, and confiscate his family wealth and that of the Cheneys, the Rumsfelds, and the other who led him to the White House. That money must be restored to the coffers of the American taxpayer.

[unite4change]

Wrong, although the tax cuts didn't help. This was caused by Wall Street derivates and trade swaps. Wall Street defrauded countries around the world and they are refusing to do business with us so we are bailing out the countries we defrauded. The Federal Reserves release 2 trillion dollars. Bloomberg tried to find out who received the money through the Freedom of Information Act but was not successful.

Click here: Bloomberg.com: News

Click here: Sheila Tendy: Fed Stonewalls Bloomberg News on Info Request -- Necessary Confidentiality or Cloak of Secrecy?

[planetjeffy]

The next 2 to 4 years will be rough. This article didn't cover the commercial mortgage problem and how tight credit will accelerate loan defaults for commercial properties and whack the banks again. Also, compounding the alt a, option arm and subprime problem will be the growing unemployment into double digits that will crank up the mortgage defaults. Not only will low income, speculators and marginal credit people lose their homes, average working folks will start losing theirs next. Trying to prop up property values or bail out banks will be like using a thimble to drain the ocean.

The good news...I will be able to afford a really nice house in a couple of years.

[Kynn]

So, invest in shotguns and canned food?

[TXfemmom]

Excellent point.

[Eriq]

Yes, excellent point. There has been a theory that within our generation there could be another civil war in this country, and the condition of the present economy--and Whitney Tilson's apocalyptic portrayal of events to come--point towards that scary possibility.

Yikes!!!

[Cinnamonape]

That's fine until people start breaking into the places that have these to steal them. When you get to the point where survivalist stuff are necessities there will be no way to sell them. And those that have them will be targets.

[drkazmd65]

I'm going for a bow myself - but canned food, a large stores of dried beans & rice are likely a good idea as well.

[DasBoatless]

And the beauty of this is that I can now afford a larger boat than I was looking for at less money than I had planned on spending. And live on the Chesapeake with a waterfront view myself for a fraction of my rent. All these greedy schmucks that bellied up to the open bar are selling their souls now to get rid of their hangovers. Woo hoo!!!