March 25, 2006

Leverage, Liquidated Wealth and False Income: FDIC Housing Risks Detailed

From their 3/23 Banking Issues / Recession Risks report. One thing you'll note in all historic bubbles is the use of leverage. With this Worldwide Housing Ponzi Scheme, humanity figured out a way to take leverage to a whole new level, and by a massive percentage of society, not just a small group of speculators, but the majority of the population.

Does anyone realize that maybe 10,000 people in the world probably read this report? I assume this is basic stuff to a lot of people, but in the end, consider yourself among the uber-informed. Now what will you do with the knowledge?

The risk of a housing slowdown is another area of concern going forward. The recent housing boom has been unprecedented in modern U.S. history.

It has been suggested by many analysts that the housing boom has been a significant contributor to gains in consumer spending in recent years. Indeed, a number of the FDIC roundtable panelists pointed to the apparent connection between rising real estate wealth during the past four years and the sustained strength in consumer spending during that period.

Because consumer spending accounts for over two-thirds of U.S. economic activity, any shock to consumer spending, such as that which might be caused by a housing slowdown, is a concern to overall economic growth.

It is estimated that anywhere from $444 billion to $600 billion was liquidated from housing wealth during 2005. Whichever estimate one uses, the total almost surely eclipses the $375 billion gain in after-tax income for the year.

In addition, the degree of effective leverage in home-purchase loans has risen in recent years with the advent of so-called “piggy-back” mortgage structures that substitute a second-lien mortgage for some or all of the traditional down payment.


moman said...

Just read the paper this morning to the article about the median new house price decreasing and sales dropping 10.5%.

The paper suggested that the housing bubble may be deflating much faster than expected increasing exposure to an economic shock.

At least once this gravy-train ends there will a great supply of almost new SUVs and sports cars available for dirt cheap for years. I might buy a Hummer H2 from a fucked suburbanite for a couple grand just to drive it into a pond. That would be the ultimate irony wouldn't it?

Anonymous said...

I plan on upgrading my furniture at all the garage sales this summer, 10cents on the dollar!
Might even get me one of those hot tubs everybody bought with their home equity loans.

Tom DC/VA said...

Looks like somebody is about to get crushed by a large object that's higher than it should be.

Anonymous said...

Moman, lets take that H2, chainsaw the back off, turn it into a pickup truck and help anonymous pick up their hot tub.

dotherobot said...

...and that, my friends leads to this:

Buy a house...get a 2nd or 3rd mortgage...spend all the proceeds, then either sell out or walk away and remember all the good times!

moman said...

Okay, I'll let you borrow the H2 because I wouldn't be seen driving one, pickup truck conversion or not. I'd only feel good throwing a brick on the gas pedal while It's pointed at the lake, which i'll do after you help anonym pick up his furniture.

I'll rent the Lowe's truck to pick up mine.

Richard said...

what i did was take out around 100k in my house...fixed rate for 3 years and bought physical gold and silver. The pm markets have gained upwards of 30% since last year and the market is expected to go much much ... much higher...

Anonymous said...


where did you buy the silver & gold from? bullion or coins?

Richard said...

anon - there's a local place here in ?'s just cash...I started with pre 65 coins ...moved to 10 oz bars...the 100 oz bars.... I read every day...silver is on the launch paid with the recent ruling of the ETF....some say silver will hit $200/oz in the next 3 to 5 years...i think in the next 3 to 5 months.

Richard said...

gold I bought krugerans...lowest premium...well recognized...the only reasom i bought gold is the weight factor...after a while it adds up...yet silver has typically outperformed gold by 30% or greater.

Anonymous said...

What do they use silver for besides grandmas flatware?
And why would silver outperform gold? just curious. thanks

Richard said...

anon - check out

everything you wanted to know about gold and silver and lots more

Anonymous said...

The world's supply of silver is running out. Warren Buffett and other billionaires are starting to hoard silver. It has alot more uses than people think. I've been buying stock in silver comanies but have also thought about buying the physical stuff.

Palladium went from $60 to $1100 when news came out about a shortage.

Richard said...

u bet anon - Richard Rainwater also is stock piling the stuff...hold on to your seats!!!!!...all those who bought atvs, european trips, rvs, gone out to dinner every night with thier "paper" equity are gonna be (ARE) looking damn stupid right bout now...i expect to turn an easy million (or two or three) on a $100k investment...thanks all to this RE bubble!!!!POP ON!!!!

Anonymous said...

Sorry but Kitco was too confusing,
Like I ask before, What do they use silver for besides grandmas flatware? I would expect you guys would know what they need silver so much for if you were all buying it up. I dont see how cornering the market would make it so valueable If no one uses it for anything. They were buying up beanie babies and no one needed a beanie baby for anything. Just curious, Thanks

I ask this in the nicest way, I'm not trying to be an asshole or anything.

Anonymous said...

Uses of silver

Do you know why memory chips start using gold contacts in the 1990's? Because there was a shortage of silver. Silver is a better conductor than gold, but for some reason, it is cheaper.

Richard said...

By the time you finish this silver will be at $11.00/oz, but have at it.


Jim Cook lists some of silver’s modern uses, many of which are infinitesimal in amounts per unit, but multiplied by many millions of units, it’s a lot of silver. This has largely accounted for the draw-down of inventories.

* * * * *

Both rechargeable and disposable batteries are manufactured with silver alloys. Billions of silver oxide-zinc batteries are supplied to the world’s market yearly, including miniature-sized batteries for watches, cameras and small electronic devices, and larger batteries for tools and TV cameras.

Steel bearings are electroplated with high-purity silver because silver-coated bearings provide superior performance and safety for jet engines. Silver solder facilitates the joining of materials. Silver-brazing alloys are used in air conditioning, refrigeration, power distribution, automobiles and airplanes.

Silver is of first importance to plumbers, appliance manufacturers, and electronics.

Chemical reactions use silver as a catalyst; approximately 700 tons of silver are in continuous use for the production of plastics.

Silver is essential for producing a class of plastics which includes adhesives, plastics, laminated resins for construction, plywood, particle board finishes, paper and electronic equipment, textiles, surface coating, dinner ware, buttons, casings for appliances, handles and knobs, packaging materials, automotive parts, terminal and electrical insulation materials.

Silver is necessary for producing soft plastics used in polyester textiles. It is used for molded items for insulating-handles for stoves, and for computers, electrical control knobs and Mylar tape (which makes up 100% of audio, VCR and other types of recording tapes). It is also used to produce antifreeze.

Silver is used in commemorative and proof coins around the world. There is wide silver use in silverware, jewelry and the decorative arts.

Silver is the best electrical conductor of all metals and is used in contacts and fuses and ordinary household wall switches.

The use of silver for motor controls is universal in the home. All of the electrical appliances, timers, thermostats, and some pumps, use silver contacts. A typical washing machine requires 16 silver contacts. A fully-equipped automobile may have over 40 silver-tipped switches.

Silver relays are used in washing machines, dryers, automobile accessories, vacuum cleaners, electric drills, elevators, escalators, machine tools, locomotives, marine diesel engines and oil drilling motors. It is also used for circuit breakers. It is widely used in electronics, membrane switches, electrically heated automobile windows and conductive adhesives.

Every time you turn on a microwave oven, a dishwasher, clothes washer or TV set, you have activated a switch with silver contacts. The majority of computers use silver-membrane switches. They are used for cable television, telephones, microwave ovens, learning toys and keyboards of typewriters and computers.

The silver contact membranes which are marketed in the U.S. are a billion-dollar industry. Silver is used in prepaid-toll gizmos. Radio-frequency identification devices will soon make an appearance imbedded in credit cards and passports.

Silver is used in circuit boards and is essential to electronics to control the operation of aircraft, car engines, electrical appliances, security systems, tele-communication networks, mobile telephones and TV receivers.

They use silver in windshields in General Motors all-purpose vehicles because it reflects some 70% of the solar energy. Every automobile produced in America has a silver ceramic line in the rear window to clear the frost and ice.

Silver plating is used in Christmas tree ornaments, cutlery and hollow ware. Because it is virtually 100%-reflective after polishing, it is used in mirrors and coating for glass, cellophane and metals.

A silver transparent coating of silver is used on double-paned thermal windows.

Silver has a variety of uses in pharmaceuticals. Silver sulfadiazine is the most powerful compound for burn treatment worldwide. Catheters impregnated with silver diazine eliminate bacteria. It’s increasingly being tapped for its bactericidal properties from severe burns to Legionnaire’s Disease.

One out of every seven pairs of prescription sunglasses incorporates silver. Silver-based photography has superior definition and low cost; it is still the biggest user of silver. Silver in x-rays consumes millions of ounces more.

It is widely employed as a bacteria algaecide. Silver ions have been used to purify drinking water and swimming-pool water for generations. Silver ions in house frames help resist mold and mildew. Silver compounds are providing doctors with powerful clinical treatments against antibiotic-resistant bacteria.

I could go on and on, and I guess I already did, but that’s why our silver inventory is disappearing, and that’s why silver is turning into the investment of the century.

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