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The US banking system is in very serious trouble. In fact, as an institution, American banking is probably broke. The reason is incompetent management of foreclosures. Two things have gone wrong. First, banks have carried foreclosed properties at unrealistic valuations. Second, millions of titles have been thrown into uncertainty by flawed foreclosure procedures and illegal foreclosures.

In fact, just as the original mortgages were worthless when bundled into securities because there was no way to determine their actual value, the foreclosed properties are worthless because there is no way to determine whether or not they have clear titles. So the inflated valuations cannot simply be lowered to more realistic levels. There is no realistic level.
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Why so many foreclosures? – Foreclosures aren’t the cause of today’s housing surplus–changing demographics are. The excess supply and its persistence are directly linked to the increase in homeowners over age 55 who want to sell and downsize, coupled with the decrease in number of 30- to 45-year-olds who want to buy. Economist William Lucy says this means that the path to a housing market rebound doesn’t lie in new construction, but in rethinking housing needs based on changing demographics. He says, “Surplus housing is not caused by either excessive new construction or by foreclosure,” noting that only 20% of housing units for sale or sold in 2009-10 were new houses and foreclosures.
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The war on poverty – Most of the wars we’ve fought have been in reaction to the threat of being invaded, but right now we’re fighting wars in two different countries, where we are essentially engaged in the (probably futile) mission of nation-building.
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What sucked up all our money in the mortgage crisis? Policymakers and analysts continue to dispute causes of the 2007-2008 foreclosure crisis, which triggered a much deeper and more serious financial crisis and ultimately an economic recession. Did banks prey on unwitting consumers, or did households overreach and borrow more than they could afford–or was it BOTH? And if the debt on your house in cancelled due to foreclosure, you’ll owe federal taxes on the difference on the amount of debt that’s left when the bank takes control of your house, because they consider it to be INCOME!
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