Let us be blunt: The mortgage foreclosure crisis, which first burst into full public view with Bank of America’s suspension of all foreclosures only a few days ago, has the potential to completely destroy the American real estate sector in an epic legal and economic meltdown that would make the crisis of 2007-2008 look like the proverbial Chinese tea party.
The notes of the latest meeting of the Federal Reserve, released on Tuesday, clearly show the Fed’s next step in trying to solve the problem it has created: Quantitative Easing II, or QE2 (qualitative easing is Fed-speak for increasing the money supply). The meeting lasted more than five hours and consisted of a debate about when to start the process: now, or later.
On September 22, the Business Cycle Dating Committee of the National Bureau of Economic Research (BCDC-NBER) announced that the recession (it began in December 2007) had ended in June 2009. Obviously, all of those out-of-work Americans clogging the unemployment lines and lining up at job fairs didn’t get the good news.
Alan Greenspan, former chairman of the Federal Reserve, is worried about many things. In March he worried about the future of the economy. “The important lesson,” he wrote, “is that bank regulators cannot fully or accurately forecast whether, for example, subprime mortgages will turn toxic…. A large fraction of such difficult forecasts will invariably be proved wrong…. Anticipating the onset of crisis … appears out of our forecasting reach.”