Jim Cramer had an “Eureka Moment” on his show last night:
When 17 million people cease paying their mortgages… and that’s if everybody does… you have 17 million people losing the biggest monthly payments they have to make, totally at the expense of a fortunately well-capitalized banking system, and congressionally-supported government-sponsored enterprises like Fannie and Freddie…They’re part of why the retail numbers are so strong. And that’s the puzzle solved.
I just keep coming back to the “housing consumer miracle”… the huge transfer of wealth that’s going on, between the defaulting consumer, and the banks… all aided by politicians who routinely side with defaulting homeowners, believing squarely that it’s not their fault. It’s a modern day Robin Hood story. Or maybe it’s closer to The Merchant of Venice. The bankers can take the house, but they can’t evict the former owners.
We wrote back in November of the Kafka-esque moment we’re living in where the average number of days since the average borrower in foreclosure last made a mortgage payment was 492 days.
For some underwater homeowners living in California McMansions, including taxes and insurance, this equates to $80,000 of purchasing power. That’s a lot of iPads! How long will it be before economists begin referring to the restart of payments on “reprofiled” mortgages or monthly rent payments as a tax on consumers? In effect, if Cramer is right, that’s exactly what it is, no?
The whole mortgage mess is a tragic story and shouldn’t be taken lightly. But, we would like to see Cramer’s “Robin Hood” story quantified and measured against the efficacy of government’s stimulus. No doubt the stuff of future Ph.D. dissertations. (click here if chart is not observable)
‘Squatter Rent’ May Boost Spending as Mortgage Holders Bail – Bloomberg