If you think it’s bad now, just wait, says billionaire investor George Soros.
While generally positive on Wall Street — the worst there is over, he says — Main Street, and particularly real estate, is in for a rough ride.
"The housing problem continues to be the leading factor as far as the real economy is concerned,” Soros told listeners at a recent Council on Foreign Relations event.
"Just as housing prices overshot on the upside, they will also overshoot on the downside. Indeed, house prices are accelerating to the downside.”
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The most recent data on home prices certainly back up Soros’ point.
The Standard & Poor’s/Case-Shiller home price index for the country’s 20 largest cities plunged 12.7 percent in February from a year earlier. That’s the biggest drop in the index since it started in 2001.
The rise of foreclosures is in an early stage, Soros says.
"To expect that by the end of the year you will have passed through that” is unrealistic. Home foreclosures exploded 112 percent in the first quarter from a year earlier, to 649,917, according to RealtyTrac.
Soros does not expect much more federal help for borrowers in danger of losing their homes.
"What needs to be done is to try to keep the foreclosures to a minimum, and I don’t think either the fiscal measures or the monetary measures [adopted so far] will stop that unless something more is done,” Soros argues.
Yet "this administration ideologically isn’t prepared to intervene” in the housing market, Soros says. "Also, there is strong public opinion against bailing out lenders or borrowers who have gone to an excess.”
Wall Street, meanwhile, is emerging from the credit wreckage, but Main Street — the economy that ordinary people have to live with — is headed downhill fast, says Soros.
"I think we have the acute phase of the financial crisis largely behind us,” Soros says.
"But the damage that has been done to the system has to affect the real economy. The effect of that is only beginning to be felt.”
A consensus has formed that the Federal Reserve prevented the credit crunch from turning into a meltdown of the entire banking system when it decided to bail out investment bank Bear Stearns in March, and by lending directly to investment banks for the first time in more than seven decades.
Normally, only tightly regulated commercial banks can get such direct access to Fed money.
Discussing the currency market, Soros said that if the Fed cuts the federal funds rate below its current level of 2 percent, the dollar will be in trouble.
"The fact that they stopped at 2 percent is now giving the dollar a breathing space,” he says. The dollar has risen about 5 percent from the record low it hit against the euro last month.
Soros repeated his view that the rise in commodity prices represents a bubble. He says people who think that markets find stability naturally are kidding themselves.
"Markets don’t tend toward equilibrium,” he says. "They actually go to excesses.”
© NewsMax 2008. All rights reserved.
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