Housing Bubble 2.0 - Attack of the Cloned Collapse

This chart shows the utter and complete collapse in mortgage originations which means prices are dropping to find buyers…like 2007.  Without buyers (and with underwater mortgages again) you can't sell your McMansion to upgrade to the next McMansion,  and banks will begin to lose money, and of course, fail…just like 2008.  From Bloomberg news we see this is exactly what is happening now:

"JPMorgan Chase & Co. (JPM), the biggest U.S. bank, said first-quarter profit fell 19 percent on lower revenue from fixed-income trading and mortgages, themes that may be repeated across Wall Street next week. The shares declined 2.9 percent."

A 19% drop in profits is large and just like 2009, 2010, and 2011, Uncle Sam will have to bail them out because currently banks are making up profit losses by giving back the funds meant to protect against exactly this scenario called "Loan Loss Reserves."  From Bloomberg news today we learn that not only did JP Morgan release $400 million, but the ever profitable bank Wells Fargo released $500 million: 

"Results (for Wells Fargo) were helped by a $227 million drop in income tax expenses, driven by a $423 million tax benefit, Sloan said. The bank released $500 million of loan-loss reserves. Banks typically reclaim money put aside in earlier years as the economy improves and borrowers become less prone to default."

Yes, less prone…because increased defaults never happen in the land of unicorn and rainbows where interest rate increases and a lack of buyers never turns into collapsing home prices, underwater mortgages, and increased defaults - never.  

I suppose Governor Walker can be excused for not seeing this coming (perhaps the class they teach bubbles in was a senior seminar) but doesn't Mary Burke have an MBA from Harvard?  I would expect somewhere in there they discusses interest rates and finance.  Why are neither of them warning the people of this state?

I write these blogs so that people know that at least someone on the ballot this fall was not "surprised" by these event and understands the economics driving our propped way of life.  If I understand how economies fail then perhaps I might have an idea on how economies succeed as well.

On a side note, will someone call Governor Walker for me and ask what time Mike Ellis will be arrested for a clear violation of election law?  If his attorney general wont do it mine, Tom Nelson of Madison, will.

You have a choice, the only thing you need to do is make it.  Until then enjoy your debt servitude.