The Great Depression saw typically leveraged margin accounts go bad, leading to a long series of consequences. The Great Housing Depression upon us will see insanely leveraged margin accounts go bad (today called "no-down home mortgages"), and boy, will there be consequences.
Someone made those loans. Someone holds those loans - and not just in the US, but around the world. Someone believes the collateral (the house) against the loan will protect them.
Well, when the loans go bad (payments stop) and the asset value plummets (house price declines), we got ourselves a heap of trouble.
Because of the lack of oversight on these loans (hello Fannie and Freddie), we basically have a system of unregulated, unwatched margin accounts being distributed to the masses, not even the educated speculator as in the 20's.
And the bagholders are going to get killed. And I don't think our highly leveraged, debt-addicted government can bail them out.
Panic in the 20's resulted in a run on the banks. Panic in the 2000's will see people trying to dump their houses at any price. Then as banks start to fail, a run on the banks themselves and use of FDIC's $100,000 insurance.
You'll see a slippery slope, you'll see momentum take over, and you'll see a Great Unwinding.
June 23, 2006
Posted by blogger at 6/23/2006