In fact, if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.
"If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy," he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.
That doomsday scenario has many industry professionals supporting lenders' tactics of holding onto most of their REOs. Otherwise, they would be "causing the floor to fall out from underneath the entire market," Faranda said.
Yes, and it's also why Ben Bernanke lent so much money to Wall Street banks, some of them former investment houses quickly converted to standard commercial banks, that were also allowed to turn around and park that borrowed money at the Fed to earn more interest than they were paying on the loans from the Fed.
It's all been a tactic to, in Ben's mind, delay handling the shadow inventory and toxic securities until the whole economy will have very slowly absorbed the losses. It was a method to avoid nationalizing those banks, the way AIG was nationalized, only to be operated by the government as well and likely as utilities.
Whether or not one agrees with his reasons, it has to be admitted that Ben Bernanke has done a masterful job (so far) in pulling it off. Didn't most people believe he'd not be able to avoid high price-inflation by now? He's really done a balancing act. Will he be able to stay up there on the high wire with no balancing pole? It's going to get windy. Has he had them installing a net in case he finally slips? What's Plan-B, still nationalizing if push comes to shove?
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