America’s Sub-Prime Housing Disaster Will Affect the Whole World
July 31, 2008
With the American housing market in its worst crisis since the Great Depression of the 1930s – caused directly by international capital funding the wave of Third World immigrants into that country from Mexico and other South American countries — President Bush is authorising new legislation to pave the way for massive new government intervention designed to slow the slide.
Faced with seemingly never-ending falls in the value of their properties, some of these new American home-owners are taking radical action; they are choosing to walk away from homes and their mortgages.
Though banks can repossess and sell the homes of borrowers who stop paying their mortgages, under a legal quirk originating in the Great Depression of the 1930s, banks cannot easily pursue borrowers for any balance outstanding on the main mortgage on their homes.
Professor Nouriel Roubini of New York University, one of the first economists to warn of the dangers of the American house price boom, believes the number of people positively choosing to walk away is growing rapidly.
“This is becoming a tsunami of voluntary defaults,” Professor Roubini says. The losses for the financial system from people walking away could be of the order of one trillion dollars when the entire capital of the US banking system is only $1.3 trillion.”
“You could have most of the US banking system wiped out, so this is a total disaster.”
Which is why it is not just US policymakers who are hoping America’s new, multi-billion dollar initiative to stabilise the housing market will succeed in its aims and thus make walking away less attractive.
Because if it fails, the economic fallout could be felt far beyond America’s shores.

























