NEWS: The Sky Is Falling. And It Looks Like A House.

POLITICS: The Sky Is Falling. And It Looks Like A House.

Stock prices have fallen 10% over the past few weeks and we seem to be headed for a global financial crisis. It is going to be a doosey, similar to the junk bond collapse of 1987 or the S&L crisis of 1990. This one is starting in the housing market and spreading like a bad rash.

The housing market is in a freefall due to a combination of idiotic loans, excess inventory, declining sales and dropping prices. And it is only going to get worse. What happened to Enron is now going to occurring with the mortgage business.

When Enron collapsed, it was because of a domino effect that started with a downgrade from a credit agency. When credit dries up, ugly realities are revealed. Soon credit agencies will be forced to downgrade mortgage company debt, which will cause millions of adjustable-rate mortgages to reset at higher rates. That will force investment funds to have to sell them. But there will be no buyers because everyone will be selling. We call that a crash and we are way overdue.

People have been shifting their debts around and not paying it off for some time now. A lot of that debt has landed in the housing market. Because of what has been happening with home prices the past few years, people have begun to expect that their house will increase in value every year. That is not the case. Now homes are going into foreclosure because people are not able to sell their homes. But it’s their fault, so fuck ‘em.

Many idiots took out adjustable-rate loans that will begin to go up very soon. There are the “interest only” loans that start with extremely low interest rates for the first two years, and then “normal” interest rates for 28 years. Most people just assumed they would be able to sell their house before the “normal” interest rate kicked in. They can’t, because so many other idiots thought the same thing. And they can’t pay the higher monthly mortgage. There are many other moronic loans out there that the banking industry was giving out like candy. The time of reckoning is upon us. The foreclosures have begun and the banks have stopped the home refinances.

So, all those people who were refinancing their homes to pay off their credit cards, or to take a vacation, or to buy a car are fucked. Which means they can’t spend money anymore and they are in a shitload of debt. The refinances were keeping everything going, but refinances are no longer being offered. Credit is drying up. The effect is already spreading.

You motherfuckers! Your irresponsible loans might kill The Hobbit. I might have to go on a shooting spree!

The Bush administration seems to have its head in the sand, which is not surprise.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been saying these subprime borrowers aren’t contagious. They believe the economy is strong enough to overcome all of the foreclosures. For that to happen, people would have to keep spending. Guess what? That ain't happening.

People we look to for a little entertainment as we get our financial news are freaking out.



Credit cards are next. For years, the credit card industry has been redefining how you should use credit cards. They went from emergency use only to basically being used as cash. In the old days people would have this thing called a savings account for emergencies. Not anymore – that is why we have credit cards. And because we have credit cards we can spend all our money instead of saving it! It’s a win-win! But credit is not something you own. It can be taken away or the terms and conditions can be changed or the costs can be increased – at any time. Mortgage companies like Countrywide Financial and American Home Mortgage are finding that out right now. Soon the man on the street will, also.

This is going to get very, very bad.

the moral of the story is...... STAY THE FUCK OUT OF DEBT!!!!!!! this market correct IS going to hurt!!!! but it needs to happen! i am just glad i have a fixed rate, no credit-card debt, and my truck will be paid of in less than two years!

FTR....something we agree on. The severe inflation in prices in the housing market, too, is partly to blame (in my opinion). I just bought a house last April (thankfully...I refused to even consider an adjustable rate - AT ALL)

The house I bought is not much, but it is what I knew that I could afford without be grossly in debt. My credit cards are all paid down, and I use them...only to supplement my otherwise good credit. (in other words, I use them only when I have the money to pay them right the fuck off)

Can't wait to get my car paid off.

ive been saying this was going to happen for 2 years now

Of course, we all know what's going to happen in the end. The lenders will start going belly up because they made bad loans to people who can't afford to repay them. The government will finally step in and bail them out. With tax dollars. Forget the fact that these are companies that should go out of business. A loan is, at its core, a gamble. You're betting that people will be able to pay back the loan plus the interest. If companies aren't willing to do their homework to determine who should and shouldn't be given loans, then those are companies that should lose money or go bankrupt. A bad loan is no different than a bad investment decision.

Reaganites, pay attention - this is what happens when you deregulate the banking industry. The S&L crisis was the first wave - those were primarily business loans. This is the second wave - mortgages.

This is why I don't have a credit card and I pay cash for everything. Tho I do feel for all the people who are about to go belly up, this is a HARSH way to learn this lesson.

Update

The Federal Reserve can put off the impending doomsday by lowering interest rates, seems to be the opinion of many people.

Just to be clear here; it is the fixed income market that is being hurt. There is no inflation in house pricing, as inflation is defined. These are the dynamics of any market where the price is of interest to the seller, and the cost or financing is of interest to the buyer, which is true of many markets.

Debit card, folks. All the advantages and convenience of a credit card, without the spending money you may not actually have. (Which, I suppose, is in some ways an advantage, but not to my debt-averse way of thinking.)

Also - might have to cancel the Hobbit, but also the next Terminator. Does this balance out? Hard to say.

bye, bye pension

What sucks is the poor people who got fooled into beleiving they could afford the American Dream. Some loan companies lied to these people, and now these people are royally screwed. There is nothing funny abou that.

Which makes the intentions of the former chairman difficult to understand. The hikes were all being excused as inflation prevention. Yet, the majority of people in the financial world I talk to, were stating over and over and over and over again "we do not have an inflation problem."

I have not studied nor understand enough about economics to fully understand why the VC's and CFO's I talk to personally were getting very frustrated that "inflation" was being used as the reason to increase rates.

In fact, they were saying similar things to what Cramer is saying now when Greenspan started raising rates, however many years ago that was, only back then the conversation would end with "laughing" at the idiot; and no one believed it would get this far.

No one is laughing anymore, outside of lawyers.

The "soft landing" idea that got Greenspan through the 90s essentially believed that rates needed to be raised in anticipation of inflation to reduce its effect. Which is why when certain economic indicators (like new housing starts) were flying off the charts, raising interest rates probably seemed like a prudent move, at least if the plan was to stick with reducing the amplitude of the traditional boom/bust cycle.

Lowering rates now seems to be little more than a stopgap measure - like you said earlier, it just pushes back the date for impending doom (and potentially worsens its effect), it doesn't change any of the fundamental economic reasons why a housing boom fueled by debt can't sustain the economy by itself.

It's a good time to get some stock bargains if you have a stable income and your debts under control.</silver-lining>

The rate cut will at least arrest some of the rise in monthly payments on these adjustable rate loans, and it's a proactive measure in the event this situation causes a full-blown recession. But it risks a further increase in consumer debt, which is also high. Unfortunately, the demand for real estate created some absurd price increases - people couldn't wait for prices to stabilize or come down and banks had too much money to lend so we get this mess. I can't believe anyone would borrow OR lend at adjustable rates at a time when rates are historically low. The lenders and borrowers are all morons.

that video is Hilarious.

I'm glad I'm not in any kind of debt.

Oof

Yikes.

Fucking yikes is right.

just make your check out to china.

Do these people not know what FDIC insured means?

Frankly, if the federal government is unable to make payments on insured accounts, we're in much more serious trouble than anyone thinks.

FDIC insurance only covers the first $100K. Mr. Ashmore cashed out $500K. I'm guessing he didn't cash out an IRA so the $250K limit for retirement accounts probably didn't apply.

Unless he had his assets structured in the bank via different legal entities, each considered a different depositor, he was very exposed as a HNW individual with that amount of assets in a single bank.

Some reports indicate that Countrywide is looking at bringing their mortage business under their banking operation so they can use deposits to source loans. Given the questions in the overall health of the subprime market I would have been in line right behind Mr. Ashmore to draw out any excess over $100K in Countrywide.

Went in on Monday mornin' and my stocks were gone, the enron-ron-ron, the enron-ron.

(Joke Copyright R. Williams)

Yeah, this time will be great for people who aren't idiots and who CAN understand basic math.

Goldman Sachs stock is at bargain basement prices right now. Only 30% of their business is credit derivatives (so even a 100% meltdown would have limiting effects), and the stock is trading at lowest p/e ever.

Also, this is a great opportunity to cherry pick some nice homes at firesale prices. My investment banking friends are all planning on doing this with their personal money.

I personally have no sympathy for the stupid and greedy. Have fun being homeless because you couldn't do basic math, and thought an expanding market would always keep expanding. And to the mortgage lenders, sucks to be you. Hope you sold off your loans before the crunch.

I know a guy who lives in my friend's building who was talking about how he saw this coming...regardless of whether or not he did, he's prepared...

my dad's been sitting on his house in denver for five years waiting to sell it so he can build a new house in the mountains...of course his new wife didn't like the plans for the new house so they waffled around for two years and lost money on the other house...fook.