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
Could the banking system be on the verge of failure?
Subscribe to:
Post Comments (Atom)
19 comments:
Keith,
The problem extends beyond housing. Over extended credit is seen everywhere in our culture now. Detroit is finished. The "we will put you in a Jag no matter what your credit is" sales push is seen throughout our auto industry. And America is [was] all about building cars. The credit bubble has been keeping our this industry on life support and that will come to a sudden end here soon. A hard rain is about to fall...
Don't sell Home Depot short yet. They'll sell lots of lumber as raw material for wooden nickels.
http://tinyurl.com/f25de
And for boarding up windows on foreclosed houses.
Wild inflation is the only cure.
I take issue with saying the mass of speculators in the 1920's stocks were educated.
The bubble burst when the "man on the street" and shoeshine boys entered, and they are no different than today's real estate flippers.
Hey, the "experts" today are usually some newly minuted real estate agent who "owns" 4-5 properties herself for flipping...
Also most of the loans are syndicated, and the pain will be felt by all throughout the system. I am not sure of a collapse, but some painful losses. (Does not mean certain funds will not collapse though)
From a friend who is a senior level manager at Long Beach Mortgage …
Long Beach Mortgage, a subsidiary of Washington Mutual, is starting to see a dramatic increase in defaults.
The majority of their customers come from the Latino communities of OC, LA, IE, and SD. In the past, these sub-prime customers have been very good about staying current or at least refi-ing before they fall behind.
Long Beach Mortgage resells their mortgages with the agreement that they will buyback underperforming loans. In the past, this had been a non-issue for them since rapidly rising property values allowed the sub-prime bower to simply refi to get more money and continue to stay current. But over the past 60 days they have seen a DRAMATIC increase in the number of underperforming customers that can not refinance.
Ultimately Washington Mutual will be stuck with the properties. A ton of $800K mortgages on 2BR shacks in Santa Ana that are really worth half or less.
The point here is that Washington Mutual is highly leveraged to the performance of its sub-prime customers even though it has sold these loans off in the secondary markets.
“THE MOLE”
Here is the link to Leo Wanta's story http://www.rense.com/general70/leo.htm
The world is ending and Jesus will return in a couple of weeks.
You must sell your belongings and send a big check to Pat Robertson or the 700 club by this weekend if you'd like to be on the list.
Jesus will be taking 700 club members first, then Americans, then the British, and the French last of course.
I'm personaly going to Paris for the party because I heard Heaven was overated and Jesus has smelly feet.
Laura-
I have been mulling the same scenario in my head: banks need cash so raising rates on CD's helps them get it.
I'd lve to get an opinion from someone who actually knows something about the way banks "think"!
"I'm personaly going to Paris for the party because I heard Heaven was overated and Jesus has smelly feet."
Er...No, that would be Paris and the French you're thinking of, but could easily enough be Paris Hilton (just to get back on topic about the property market)!!
I read that FMN has $700B in loans it holds and has sold off $1B in loans that - IT GUARENTEES - there is trouble brewing. the market cap is only $44B, so how can they guarentee $1T in loans? If these numbers are wrong please correct me. I found them on the YHOO message board for FNM.
I believe that the collapse of FNM will be a huge history maker and a real drag on the US economy and the US dollar. I am still buying gold coins and trying to figure out where to put cash. T bills look OK for the very short term but long term I dunno.
The TV infomercials about buying RE for no money down, even if you have no money and/or bad credit still flood the TV. Put in a call with your ccard and for $9.95 they will send out the package to review for 30 days. they never say how much will be charged for the package. They are still seeking the greater fools.
Thanks Carlton. You da man!
I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my auto loan amortization schedule site.
Have a good day!
Hey Fellow, you have a top-notch blog here!
If you have a moment, please have a look at my savings account interest rates site.
Good luck!
I am here because of search results for blogs with a related topic to mine.
Please,accept my congratulations for your excellent work!
I have a bad credit lender loan mortgage site.
Come and check it out if you get time :-)
Best regards!
Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my bad credit mortgage florida site.
Good luck!
Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my bad credit mortgage florida site.
Good luck!
Home Builders
house loans Tips for building or remodeling your dream home.
Fellow Bloggers and Friends
Find The secret to the secret at http://loans4bills.com/. If you want to find out how you can get free bad credit personal loans help visit us
Post a Comment