Anecdotal Evidence on Why the Banking System is Functionally Insolvent

Let's just take a gander at this little jewel located in a suburb approximately 25 miles outside of San Francisco (Not even one of the hardest hit areas in the US). Current asking price is $129,500. I would like to direct you to the Sales History about half way down the page.

http://www.zillow.com/homedetails/charts/18340627_zpid/

Sale History
11/18/2008: $147,153
03/04/2005: $437,000
07/07/1999: $112,000

So, in 1999, somebody cashed in their stock options (I'm told that in 1999, most Concord residents WERE getting equity participation packages) and bought this beauty. He sells less than 6 years later with an increase in equity (assuming 20% down) strictly from price increase (not mortage payments) of a respectable 1451.9% ( $22,400 to $322,600). Maybe he bought an Escalade. Maybe he bought 10 more houses and a steak dinner at Outback WITH the extra 1/2 pound of crab legs. (see: Consumer Discretionary Overcapacity) But I digress.

The real problem begins when buyer 2 comes into the picture. Most likely a 3 year fixed, zero down 30 year ARM which would mean that foreclosure sale occurred about 8 months after payment adjustment. Granted the loss of a home is a terrible occurrence, but there is also a lender of some sort who not considering other costs lost almost $300,000 (and 65%) in the course of 3 years on ONE HOUSE 25 miles from San Francisco. According to the Census Bureau, there are 69 million single family detached homes in the US (as of 2000).

It's easy to see how quickly losses could stack up with "assets" like this loan on the balance sheet of a leveraged institution.







[Housing Crisis][Foreclosure][Economy][Bailout]