As the economy continues to worsen and confidence generally erodes as reflected in part by the Dow Jones Index dropping 25 percent since the beginning of 2009, the question arises: is there indeed a magic bullet to turn the world economy around?
Some have suggested that Wall Street’s exportation of toxic mortgage-backed securities to investors throughout the world was “evil genius” if in fact it was a plan to create the equivalent of a Trojan horse by destroying the rest of the world’s economy. Of course, the problem with that theory is that we took our own economy down in the process. In order to undo the damage and pain that we have inflicted, America needs to unwind or rewind the process. It is hard to envision how to do that unless we dust off our history books and look at what FDR did in a similar situation.
During the depression housing prices had dropped 30 percent. 50 percent of all homeowners were in default and a vast majority of homes were underwater, meaning that there was no equity or negative equity in such homes. This situation is similar to ours now, where rational homeowners have no incentive to keep paying their mortgages. In fact, right now in Florida, a whopping 20 percent of all mortgages are at least 30 days behind, which means that the foreclosure rate will likely double. Our government has to realize that eventually, a tipping point will occur. Even the homeowners, who may be under water but are still paying their mortgages, have to ask why they are the only chumps on the block still paying. When we get to that point in our social and economic fabric it may get so torn that it will be difficult for us to re-stitch it.
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