Some business reporters must not be too close to the real issues. They really didn’t foresee it until it was deeply evident by huge market volatility and finally the Fed lowering the discount rate by a half point to 5.75 percent. This CNN article states:

The central bank did not change its more closely watched federal funds rate, which affects credit cards, home equity lines of credit, car loans and other consumer loan rates. That rate remains at 5.25 percent.

Was the Fed cut more symbolic than truly helpful? It’s also interesting that both the Chicago Tribune and Daily Herald had articles on foreclosures on Wednesday. We have been following this since Dec. 2006.

U.S. Sen. Christopher Dodd (D-Conn.) held a press conference on Tuesday that was very enlightening. He is getting the message that many of the business analysts aren’t. There is a real crisis here. It has been simmering for months and many of the business analysts didn’t seem to get it.

After Dodd’s conference, the talking heads had to dissect and interpret it. Some discounted it as just being political on his part in trying to get into the presidential campaign spotlight. In this case, I think the facts are there and Dodd was simply astute enough to point it out.

Since 2006, there has been a huge rise in foreclosures. The people affected range from speculators trying to maximize their money as well as those trying to hold onto an adjustable mortgage that may not have been the right decision. Some estimate that this could be several million mortgage holders. What are the realities of the market?

Is a Bailout Needed?

Should people be bailed out who jumped on a $600,000 or $800,000 home mortgage when they should have stuck within their budget and bought a $400,000 home? Did they get proper guidance from their mortgage broker and lender as to what they could really afford? Should there be a special bailout fund they can use to keep their investment?

These are the questions that are being posed and debated by many people across the different business news discussions. Should the market just be the market? “You took on more risk than you should have” would be the quick answer from many who are still solvent on their mortgage payments and took a more conservative approach.

In talking with several people in diverse occupations (from an accounts payable manager to a software developer to an executive recruiter), they say: “Tough luck. I don’t have anyone helping me.” What about people who lost money on hedge funds? No bailout or tax breaks for them. This comes from an Economic Policy Institute article:

Not only do these rich individuals have no need [for] tax breaks [but] the hedge fund and private equity industries have demonstrated time and again that they are not exemplary economic citizens who deserve privileged tax treatment.

While most fund managers are probably law-abiding investment advisors, there are innumerable examples of wrongdoing. The major types of failures and illegal activities include insider trading, IPO manipulation, embezzlement and defrauding mutual fund investors.

What about the current home market? Questions posed in an earlier column reflect the concerns that are arising now on the major business channels:

Did people switch to adjustable rate mortgages or interest-only mortgages as an attempt to stretch declining salaries to cover homes? Were more risking to buy above their purchasing level and chance that they could hold onto the property and flip it for a profit in a short period of time?

Many people have maxed out their consumer credit and already have second and maybe third mortgages on their houses. As for running out and buying a new car to help the economy, I don’t think many are rallying around that battle cry with car sales reported in July the lowest in nine years.

Reality in Foreclosures

Using the same format as earlier columns, you can see how foreclosures are still on the rise. According to RealtyTrac, the amounts are still high as compared to Dec. 2006.

Have we hit the bottom yet? Did the amount of foreclosures flooding the market peak? I don’t think so. Will we see more in the region? More adjustable mortgages are coming due. Can the people who have an adjustable at 4.75 percent lock into a 6.50 percent mortgage not only from a monthly payment schedule but from a loan-qualification level as well?

The experts didn’t have a great answers to this. The ones I believe had the most accuracy in their perspectives were cut off by those who want to pass this off as a “simple market correction”. If the mortgage market “correction” doesn’t affect you, you probably could care less.

The joke is on you because it will affect you from a standpoint of what your house is worth and whether or not it’s worth as much as you think. One CNBC commentator said people shouldn’t look at their home as an investment but simply a place to live. A house is many people’s largest single investment.

In an earlier column, I raised the question: “Do you think there is any correlation between the large number of foreclosures and the layoffs at Motorola and Lucent in the last several years?” I still believe there is truth to that. Both Schaumburg, Ill. and Naperville, Ill. are still deep in the number of foreclosures as time has run out for those who couldn’t get back into similar-paying jobs.

For the vast majority of cities being tracked since the beginning of the year, the foreclosures and foreclosure proceedings are still up from December.

Carlinism: When you play, you pay. Real estate speculation is an expensive game. As many people are finding out, it’s not for amateurs.