February 17, 2007

The money ain't gettin' paid back folks. It ain't gettin' paid back.

13 comments:

Anonymous said...

China is gonna be pissed

Anonymous said...

This is why there's such a bull market in derivatives.

Anonymous said...

Many of these exotic loan products were designed for people who were fairly certain to have significantly higher incomes in the very near future, e.g. doctor's currently in residency who upon completion in a few years would be 250k+ wage. Thus if they came up to the adjustment period they could either refi & pay the penalty for such or go into adjustment if they so desired and handle the payments. The NegAmOptARM was purely for cash flow management of people who were already rich who just wanted to maximize their returns in term of profit as well as mortgage interest deductions and/or those with end loaded annual income, e.g. large EOY bonuses.

Fixed rate pdts are the mainstay for joe/jane6pk who makes the same amount throughout the year, gets a small increase in pay each year if s/he is lucky and any EOY bonus usually just covers holiday season expenses. If you correlate income/cashflow to the mort pdt you can see how these pdts are rightsized to such. The only ARMs suitable for the average worker might be the 7/1 or 10/1 ARMs W/O refi/sales penalties. Why these? because they exceed average ownership length and they give a slightly lower upfront payment along with a significant time horizon to allow sufficient equity to form (via paydown of principle & normal appreciation) AND there is no penalty for avoiding the adjustment period. Anything less is unsuitable for the average worker.

tmaioli said...

China will get even by dumping the dollar. No matter how you look at it the US is getting it's Karmic return.

veritas_faust said...

Do you think North Korea will be pissed that they decided to counterfeit the wrong currency?

Mort said...

We all know that money isn't getting paid back. It's not real money. Loan defaults are good for the rich because it expands the money supply. Let me explain. XYZ corp. loans 500k to a deadbeat, they collect fees and book profit up front. Then they resell said worthless mortagages for a profit. The FB then buys a new car and a plasma tv. It's not real money, defaults are good for business. The end.

Jason said...

China's been buying dollars to keep their currency depressed, their trade balance high, and their workers wages low. That's as anti-market as anything the U.S. has ever done, and possibly worse. The consequences will be as bad or worse for China as for the U.S.

China can't dump their dollars all at once. Once they even start dumping, the dollar dives, and the remains of their reserves will be devalued too. Not to mention that that would mess up their carefully maintained exchange rates. Even if they stop buying dollars, their currency will climb.

As long as they pursue an anti-reality fixed-exchange policy, they're screwed.

Remember the '80s, when the Japanese were going to take over the world because of their trade surplus, which was founded on protectionism? What happened? They invested all that money in U.S. real estate. Then the market crashed. The money stayed here. The Japanese goods stayed here. Japan got what?

The Chinese are doing exactly the same thing except instead of actually buying the Nakatomi Tower at inflated prices, they're buying real estate through abstract investment instruments... at inflated prices.

Those prices drop, the money stays here, the cheap Chinese goods stay here, and Americans move on to the next Asian country that doesn't understand the laws of economics and is stupid enough to do business with us.

Anonymous said...

BUY GOLD AND SILVER

Anonymous said...

DON'T but gold and silver!

Anonymous said...

Remember credit card payments have doubled by law. Ouch!!! That has to hurt an already maxed out borrower.

Anonymous said...

Buy SOME Gold and Silver

Shakster said...

Sure it is,Taxpayers galore in America.Idiots,and thank god for em too.Idiots.

Anonymous said...

"Those prices drop, the money stays here, the cheap Chinese goods stay here, and Americans move on to the next Asian country that doesn't understand the laws of economics"

The caveat here is petrodollars. If the price of oil is still in USDs then the game continues on to the next economic miracle like Uzbekistan-Vietnam 2030, however, if the markets go from petrodollars to petroEuros or a petromonetary index (including Euro, USD, GBP, gold, silver) as a unit of OTC swap, then the game ends with the fall of the USD on the forex.