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good morning have a fascinating article today about um the current economic environment uh let's get to it right now it's uh Peter Schiff it's off of shift gold they they pretty much write what he said on his podcast and uh he's controversial shouldn't be but is um so the headline is uh banks have a bigger real estate problem today than they did in 2007 and you say to yourself well how can that be how can the banks be in a worse situation now or a bigger problem now than they were in 2007 I mean that was the great financial crisis and a lot of people get uh I think correctly a lot of people get Flack for comparing this to 2008 2009 this situation that we're seeing in the housing market and um it's not it's not really like 20072 2008 and so what a lot of people spend time doing this they say well if it's not like 20208 what's it like and my answer to that is I have no idea I've never seen anything like this the the uh Mania produced by people buying houses for the last three years uh given that they believed I think at least half of the people believed that their life was going to be dramatically different after the pandemic uh they didn't know how but they definitely believed that and uh so there was there was Panic buying there that there was an opportunity there though as well there was uh lower rates than uh people had seen in a long time and they took advantage of that now I was I have I have been and and I'm still very uncomfortable with the way the situation rolled out I mean um I don't feel like buyers um really had a great run as far as you know if a house was $200,000 all of a sudden now it's $300,000 um because of the low rates and I think that that discounted this this problem that we really have with inflation and what the government or the FED has been trying to do is Tamp down inflation inflation that they said is transitory if you believe in a certain economic theory you believe that uh the government printing all that cash uh is the cause for the inflation until they acknowledge that um and until you know that's solved uh you're going to continue to have problems with inflation so let's get into this um article it says banks are more vulnerable to the housing market now than they were in 2017 most people in the mainstream will scoff at that statement they will tell you that the situation is very different today after all we don't have a big problem in the subprime mortgage Market we're not seeing a big spike in defaults and that's true the problem is different this time and it's actually worse now just for for those of you at home I have a different opinion about um the not having a a big problem in the subprime mortgage Market while we don't have a problem in the subprime mortgage Market we do have a big problem in um the short-term rental Finance uh structure uh income only loans uh that are typically done by investors which default at a much higher rate than um owner OCC owner occupied homes uh which to me uh if if things go south uh you will see problems in that in that area um which would cause more defaults um and so let's get to this you know the meat of it it says the the problem in 2007 and 2008 was default say interest rates Rose people couldn't afford to pay their mortgages those banks that forced Banks to foreclose when the real estate bubble with the real estate bubble deflating Banks couldn't recoup their loans by selling the houses the problem was the banks had loaned out a lot of money with zero down or negative amortization and then the housing prices went down and people started defaulting because of the defaults the banks lost money but the vast majority of mortgages didn't default it was just large enough percentage that it caused insolvency at this Banks that's that's true it wasn't like everyone defaulted it was that enough caused problems in the marketplace but ship says that there's a different problem now he says it's not about default now in fact defaults would actually Help The Help the banks would actually be better off if people defaulted on mortgages the problem is the mortgage itself the banks are losing money on the mortgage Banks wrote These mortgages when interest rates were extremely low a 3% mortgage wasn't uncommon a few years ago now mortgage rates are above 7% the banks are losing money on every mortgage that's outstanding so even though people are still paying the mortgages the bank is still losing now I no one I have not heard that put put this way yet this is the first time I've seen it put this way the idea that now you know the idea that the bank is losing money on every loan does seem to coincide with the banks failing in that emergency fund that the banks have uh from the federal government that was um I think it was about two or three months ago now when that bank in California ate it uh they they held a tle mortgages but anyway um so it says you know today there's not a lot of defaults people aren't struggling to pay 3% mortgage and while home prices have declined most homeowners aren't currently underwater even if they are people aren't selling they don't want to give up a 3% mortgage for a 7% plus mortgage that's why inventory remains tight and that's what's holding prices up now I have to say I'm very uncomfortable with this idea that there aren't a lot of defaults there aren't a lot of faults yet and my own belief is that as housing prices have gone up the people that are struggling have been able to be um carried with uh the rising tide uh a rising tide leads all ships and in this case you know the you know you can you can pull equity and you may say well John that's not true show me evidence of people pulling Equity well we just had a story last week about people uh refinancing ing at a 7% rate now that seems crazy why would you do that if you had a 3% mortgage well it's possible that people are strained um with their ability to to pay any of their bills with it runaway inflation and uh so I I I don't agree that uh that home prices have declined at least not in St Louis but again on a national level yes but I also I also think that a lot of this trouble has been covered up by by the rising home prices if home prices continue to rise fine we we won't have a problem with the defaults but should that those home prices start going down which almost has to happen if you're going to continue at 78% mortgage rates we could see a lot of issues so uh this is a very different crisis he says but it's worse because they're losing money on every single mortgage they have whether or not they go into default so this is bigger it's a bigger problem for the banks they're losing more money and they will lose more money now than they did in 2008 that means we'll need an even bigger bailout all these too big to fail banks have an even bigger problem now than they did then and it's going to take an even bigger round of QE to bail them out the problem is how's the FED going to do that when inflation is high as it is and it's going higher and that's that's just it back in 2008 you didn't have the inflation problem that has been dogging us for the last year or more I I started talking about it two years ago I said can we raise ra their rates a little bit just a little bit to cool this off um but it it didn't happen and so now we continue it says Banks face another problem in this High interest rate environment they're losing depositors investors want yield they can pull their money out of the bank and put it in the money markets with a 5.5% yield um that that is not great that that is a problem that I haven't been paying too much attention to and it's only going to get worse as uh interest rates go up I mean why would you put your money at a bank when you could put it in treasuries for a a better percentage it it doesn't make much sense so um I just wanted to bring this to your attention I don't think it's getting any attention at least I haven't seen anything about it and I just wanted you to be aware that um this is this this could be the problem I don't and I'm by the way I don't I don't I don't want housing to be a problem I'd like everybody that has a job and has a decent credit profile to be able to go buy a house and afford one um I think what's been going on the last uh last little while has been been terrible um but I don't I don't run things I don't run things so anyway be on the lookout well how would we know if what shiff is saying is true well we'll see more Banks fail That's How we'll know it and then you could also question what the respon will be from the from the FED will they open up more uh liquidity which should raise interest or which should raise inflation which would be a bad thing um but you know inflation is the is is the worst is the worst problem you can have in an economy in my opinion I I just it's a tax on the it's a tax on the poor um it is just it's vicious and it's hard to it's hard to get rid of once you've you've got it and as we're seeing now um and people knew about this the the most the brightest guys in the room have known about inflation and how they chose to handle that is uh Is Not Great not great but uh that's what I have on this um what do we got I we got a few more videos coming out soon um if you like this one please hit the uh like button subscribe if you're interested in real estate uh Financial talk and uh that's all I have thank you for watching thank you for listening and I'll catch you on the next one