Yale's Shiller says housing crash may exceed the Great Depression's 30% fall. And HP'ers ask - "yeah, and that's like news to anyone?"

We told you what was going to happen.

And then it happened.

We weren't smarter than anyone. We just read Manias, Panics and Crashes.

Too bad people didn't listen. Too bad people didn't do their own research. And too bad people listened to idiot realtors on commission. Hopefully they never will again.

A SPECIAL MESSAGE TO ANYONE THINKING OF CATCHING A FALLING KNIFE TODAY - DON'T DO IT. WE'RE JUST STARTING. HOMEDEBTORSHIP IN THIS ENVIRONMENT IS THE WORST FINANCIAL MISTAKE YOU COULD EVER MAKE. AND DO NOT LISTEN TO ANYONE WHO WOULD EARN A COMMISSION IF THEY COULD CON YOU INTO TAKING OUT A MORTGAGE OR 'BUYING' A DEPRECIATING HOUSE.

Yale’s Shiller: U.S. Housing Slump May Exceed Great Depression

Yale University economist Robert Shiller, pioneer of Standard & Poor’s/Case-Shiller home-price index, said there’s a good chance housing prices will fall further than the 30% drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15% since their peak in 2006, he said.

“I think there is a scenario that they could be down substantially more,” Mr. Shiller said during a speech at the New Haven Lawn Club.

Mr. Shiller, who admitted he has a reputation for being bearish, said real estate cycles typically take years to correct. Home prices rose about 85% from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Mr. Shiller said. “Basically we’re in uncharted territory,” he said. “It seems we have developed a speculative culture about housing that never existed on a national basis before.” Many people became convinced that housing prices would increase 10% annually, a notion Mr. Shiller called crazy.

So, will Americans rise up and fight back, or will they continue to take it lying down (while watching American Idol of course)?

I've got a feeling it's gonna get hot in Denver and Minneapolis this fall. And hopefully that's just the start of it.

The lack of protest and outrage in America these past few years has been shameful. And when the people don't fight back, we get what we deserve, and we get no change.

I WANT TO SEE RAGE. I WANT TO SEE AN UPRISING. I WANT TO SEE AMERICANS FIGHTING THEIR CORRUPT GOVERNMENT AND INSTITUTIONS AND THEIR MISGUIDED WAYS. I WANT TO SEE COLLEGE STUDENTS AND HOUSEWIVES AND LAID OFF WORKERS TURN OFF THE F*CKING Wii'S AND TV'S AND GET BUSY.

America got pacified by helicopters of free housing loot these past few years. Nothing else mattered because we were all getting rich, rich, rich!!!

But now, the housing crash and dollar destruction changes everything.

Democracy is supposed to be messy. So let's get messy.

It's gonna start coming at us fast and furious now. Are you ready? Do you think Bernanke is too?

$200 billion here. $200 billion there. Another massive rate cut. A short-term Bear Stearns bailout. A dollar emergency. Wild times in the stock markets. And more bank failures and hedge fund blowups on the way.

Get ready HP'ers. It's unraveling fast now.

The Great Unwinding is here. Ready or not.

HousingPANIC Stupid Question of the Day

Do you think that our leaders in DC and the State houses, you know, the ones who took the REIC bribe money to look the other way, now understand that the whole financial system, one built on the back of a fraud-fueled credit bubble and housing Ponzi Scheme, is collapsing on their watch?

HP's 2008 Election Guide: Vote for the new guy. Throw the bums out.

Wow, the DOW has crashed 2100 points now, and the NASDAQ is down almost 20% in the past few weeks. DOPES?

That 6% on CD's ain't lookin' too bad now eh?

So is gold, so is oil, so are Euros and so is pretty much everything HP'ers said.

Man, it must suck to lose hundreds of thousands on real estate, and then what little you had left lose it on the stock market crash.

Should have listened to HP. We were just trying to help.

FLASH: Merrill Lynch, on the verge of failure, admits to ANOTHER $15 billion in subprime poo

Its fun to see all the investment bank idiots admitting to their subprime losses - like Chinese water torture, a drop at a time.

Just wait until they start admitting to their Alt-A liar's loan exposure, their option-ARM exposure and god forbid their prime 30-year fixed exposure.

And it's also fun to see these strong and powerful American companies running around Asia and the Arab world begging for dollars.

Actually, that's not fun. That part is really kinda sick.

Giant Write-Down Is Seen for Merrill

Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

Merrill, the nation’s largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.

To shore up its deteriorating finances, Merrill is now in discussions with investors in the United States, Asia and the Middle East, including American private equity firms, to raise about $4 billion in the coming days, these people said.

Merrill is hardly alone in seeking capital from overseas. United States financial institutions have raised more than $29 billion from foreign governments and their related investment entities, according to the market research firm Dealogic.

Feeling 1929?

I don't know where all of this ends up, but when credit dries up, when an epic financial bubble unwinds, and when the banks fail...

Is this Great Unwinding going to be truly different this time? Or have we been down this road before?

Ho-hum, another day, another run on a multi-billion dollar investment fund

Everyone just go read Manias, Panics and Crashes. Then when you see headlines like this, you'll look up, smile, and then go back to your popcorn.

Florida Freezes Its Fund as Governments Pull Out

Seeking to stem a multibillion-dollar run on an investment pool for local governments, top Florida officials voted yesterday to suspend withdrawals from the fund, leaving some towns and school districts worrying about how they would pay their bills.

Local governments in recent weeks have been withdrawing billions of dollars from the fund, fearing losses on investments in debt related to subprime mortgages. The rush to get out of the fund began even though a relatively small percentage of the fund is invested in subprime-related debt, and it is unclear what losses the fund may sustain.

CNN: "Big drop in home prices predicted" and NAR economist admits to "collapse"

Any homedebtor in America with little or no equity has to be entering panic mode right about now, wouldn't you say? No more housing ATM, no more "real estate always goes up" nonsense, and no more "can't lose" investment opportunities.

And anyone considering buying a new home has to be reconsidering right about now, wouldn't you say? Why buy today when it'll be cheaper tomorrow? Why buy now when it's so much cheaper to rent?

Amazing thing about this article (amidst a sea of "home sales soar" deception yesterday) is the quote from the new TCDL, the NAR Sr. Economist Larry Yun who admits that there's been an "investor driven collapse". Yes, he said the C word - "Collapse". Wow. Someone's not gonna get a good performance review this year at the NAR. Naughty Larry!

Big drop in home prices predicted
Some economists see steeper drop in store for home prices.

NEW YORK (CNNMoney.com) -- Most industry watchers agree that home prices will continue to slide before they recover, but now some economists say they've got a long way to fall before bouncing back.

David Wyss, chief economist at Standard & Poors, has forecast a price drop of about 8 percent for the 24-month period through the fourth quarter of 2008.

His prediction came during a general economic outlook session at the Mortgage Bankers Association's (MBA) National Secondary Market Conference & Expo in New York this week.
Housing prices will suffer from a "significant increase in defaults and foreclosures," he said, with affordability still a major issue. Wyss worried how hard the slump will hit already highly inflated housing markets.

He said its impact on areas like South Florida, where much of the buying is speculative investment in second homes, could be big. "You don't need a second home," Wyss said.

Overall, he said he expects the U.S. economy to slow this year to a growth rate of about 2.25 percent, down from 3.3 percent last year.

Celia Chen, Moody's Economy.com's director of housing economics followed Wyss' lead. "We also have an 8 percent decline in median house prices [for the 24-month period ending March 31, 2008], which is consistent with what David Wyss had."

"That is quite a bold forecast," Lawrence Yun, economist at the National Association of Realtors, speaking from his Washington, D.C. office, said of Wyss's prediction. NAR is predicting a much less severe total decline of 1.4 percent through the slump - prices have already declined three straight quarters - and that a recovery will start to take place in early 2008.

"The run up," Yun said, "was an investor-demand driven boom, and it was followed by an investor-driven collapse."

FLASH: Foreclosures soar 800% in California vs. last year

800%

It's not often in life that you see "up 800%" type numbers.

Sometimes, you just have to put the paper down and look at that one in awe.

Up 800%.

Not 100%. Not 200%. Not 400%. Nope, up 800%.

Wow.

Foreclosure Surge in California

A surge of foreclosures in California has some economists concerned that the fallout will be long lasting and potentially wound the whole economy.

The 11,033 foreclosures in the first three months of the year represent an 800 percent increase over the same period a year earlier.

"For this rise in foreclosures to be happening in the midst of a strong labor market is truly unique and scary," says analyst Christopher Thornberg of Beacon Economics.

He predicts foreclosures will top out at four or five times the current level — enough, he says, to induce a recession or at least bring the economy to the precipice.

Got Cash? Get ready for The Great Unwinding

You heard it here second.

First place you should have heard it was your college economics textbook.

It hath been foretold.

Time for a homebuilder dead pool? "It's only a matter of time"

Any nominations?

I loved the website fuc&edcompany during the dot-com collapse. Time for someone to start one for the REIC collapse, even though mortgageimplode is doing a great job of it on the lender side.

The collapse of the subprime mortgage market may push some big U.S. homebuilders toward Chapter 11 beginning next year, according to bankruptcy advisers and lawyers who specialize in the real estate industry.

The weakest publicly held builders are staying out of bankruptcy by relying on the profits they made when sales boomed and on the public debt they sold in those years, said Ronald Greenspan, a lawyer and financial adviser to the creditors of four bankrupt subprime mortgage lenders. Homebuilders issued $3.6 billion in public debt in 2005 and 2006, though only $600 million of that comes due this year, Greenspan said.

``There is no sword over the industry's head yet,'' said Greenspan today at a conference of the American Bankruptcy Institute in Washington. ``That doesn't mean the industry is not wounded. Instead, the breaking point could come in 2008 or 2009.''

None of the major, publicly traded homebuilders have declared bankruptcy, though there are signs many are in financial trouble, Greenspan said, declining to name specific companies. The value of shareholder's equity for some companies equals or exceeds the value of the undeveloped land the companies have under contract, he said. As the housing downturn continues, that land will fall in value.

``You are going to see the smaller companies get bit earlier,'' Bruck said. By next year, or the year after, some of the larger companies will be forced to restructure as the housing crunch continues, he said.

``It's only a matter of time,'' Bruck said.

One day soon all the get rich quick housing fools will understand

We've run this classic cartoon a few times over the past year and a half. Figured it was time again, after David at BubbleMeter reminded me the other day.

So many have made fun of HP'ers (and continue to do so), saying "it's different this time" and "the fundamentals don't matter". The trolls go on and on about how prices haven't crashed yet (per the NAR and US Government), how renters and frugal people are stupid, how even though supply is sky high it's just a return to normal, and how they ain't makin' more land.

I hope they stop for a moment, take a look at this, and maybe, just maybe, in their tiny little brains, simply understand. Oh, the folly of human nature. We've been here before, and we'll be here again.

We've just never been here before at this level. It truly is different this time, I'll give the trolls that one. This was the biggest bubble in the history of humanity. Now that's impressive.

And now, the biggest crash awaits.

Making fun of the morons who lent the liar's loan money out (that ain't gettin' paid back)

Check out this video - Comedian Kathleen Madigan on CNN talking about moron lenders, and the the stupid idea of a government bailout.

Oh, man, this is ending badly... and yet it's so funny I could cry

Hat-tip to HP'er C for the link

GE takes a $373,000,000 hit to earnings due to subprime and Alt-A (liar's loans). IndyMac is next

Ya gotta wonder what's going on on the boardroom of IndyMac (NDE) today, with it's $70 billion in Alt-A loans in 2006 (of the $386 billion total) that is in total meltdown now.

Here's the latest shocker from GE on the meltdown. If GE is taking it in the shorts, what's NDE got cookin for us? I smell bankruptcy. NDE will be the NEW and LEND of Alt-A. And I'm happily short NDE at time of writing.

Subprime woes take toll on GE results

The US subprime mortgage crisis hit General Electric on Friday, wiping $373m from the industrial conglomerate's first quarter profits and prompting its executives to warn of an incipient "bubble" in global credit markets.

GE said it had replaced the senior management team at its mortgage unit, and would reduce its workforce by around 1,000 people, or 40 per cent.

GE will also cut by half the loans it makes to less than $15bn this year - a sign of its belief that the subprime market has yet to hit the bottom.

"We have got to get our house in order," Keith Sherin, GE's chief financial officer, told the Financial Times.

Mr Sherin said the problems in the subprime sector, which targets borrowers with weak credit histories, were being replicated in the market for "Alt-A" loans for borrowers with slightly better credit scores.

Countrywide's Mozilo is still dumping shares as fast as he can. And now come the office closings (and Subways)

Thanks to HP'er Daren from Boulder for the Countrywide-going-out-of-business shot.

Look around your towns folks at all the mortgage broker and realtor offices, especially in strip malls. What will they do with all the closed down locations? Even more Subways? And what will the millions of unemployed REIC do? Besides going back to bartending and used car sales?

Oh, I got it. They'll get jobs at Subway!

As we all know, now comes asset price deflation, and cash will be king

During this period of dis-credit, or "The Great Unwinding" as I like to call it, people rush to sell their assets, de-risk, and get to cash. This stage is FIRMLY underway when it comes to houses in the United States. But that's just the start my friends. Asset price deflation will now happen worldwide, and not just with houses.

It will happen with everything.

Stocks. Metals. Houses. Condos. Baseball Cards. Artwork. Stamps. Everything.

Want a safe haven? Good luck. There are none, except cash. Just read the book. And this is a pretty damn good article too, I found it tough to cut anything out - click the link and read the whole thing...

Asset Price Deflation: The New Rules of Real Estate

When it comes to selling your real estate, better a year too soon than a day too late. As real estate values deflate in the U.S., it is clear that different markets will take their lumps at different times, much the same way dot.com stocks bit the dust one at a time when the NASDAQ collapsed in 2000. Some areas will buck the trend and hold up better than others. But scattered markets throughout the U.S. have already experienced the onset of real estate deflation, more communities are faced with that reality each day, and the psychology is getting damaged beyond repair.

Peoria's problem is your problem as lenders pull back (or go bankrupt), homebuilders decline to offer earnings guidance, and the mainstream media convey the news of the spreading disease.

Investment manias have always ended in deflationary depressions and we have just concluded the two grandest investment manias of all time, piled one on top of the other.

If you are buying real estate to hold right now, you could lose your equity and ultimately your property. At the very least, you should be taking a wait-and-see approach to buying at this point. The risk/reward ratio is completely out of whack and the snowball is just beginning to form, just a few hundred feet from the top of this enormous and steep mountain. If you can't see the danger and are buying property, face it -- you could pay dearly.

If you are counting on the Federal Reserve to "inflate" in order to save real estate's bacon, I believe you are making a mistake. The market will be taking it from here and the Fed will be powerless to "fix the problem." Socionomist Robert R. Prechter, Jr. (author of the recommended Conquer the Crash , 2002 ) in my opinion says it best.

The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation . As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity of money," i.e., the speed with which (money) circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend...

If people and corporations are unwilling to borrow and unable to finance debt, and if banks and investors are disinclined to lend, central banks cannot force them to do so. During deflation, they cannot even induce them to do so with a zero interest rate.

Thus, regardless of assertions to the contrary, the Fed's purported "control" of borrowing, lending and interest rates ultimately depends upon an accommodating market psychology and cannot be set by decree. So ultimately, the Fed does not control either interest rates or the total supply of credit; the market does...

Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward "spiral" begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, "restructuring" or default...

In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

People in communities across America are walking away from their upside down, nothing-down mortgages as the housing mania unwinds. Homebuilders are giving buyers $30,000 to $50,000, even $70,000 worth of free upgrades, credits and "incentives" while still reporting the sale at full (or gross) price. Back-to-market foreclosure properties are adding to the slump, while bankruptcies in the U.S. are up 70% year over year. There are significantly fewer buyers, and those buyers are offering less. I would not be surprised if many (not all) U.S. real estate markets have already experienced 20% market declines in the most recent 18 month period.

Additionally, the number of sales is down considerably -- in many markets 30% to 40% -- so the number of people willing to buy for just-beyond-peak prices has already dropped substantially.

The market is in the process of going splat, buyers are noticing and getting skittish, the mainstream media coverage is reinforcing the psychology and the foreclosure/lending/ banking crisis has just begun. The challenges we face from the real estate shakeout become more daunting each day.

Don't leverage into anything. During the credit contraction/liquidity crisis portion of the post-bubble meltdown, anyone who is leveraged will get punished. So do not borrow against one property to buy another, do not buy with little or nothing down, do not use your line of credit to buy real estate, and do not take on a teaser or negative-amortization loan betting on market appreciation going forward. Look at everything with the most critical eye you can muster right now. In fact, resist your urge to use leverage to buy any investment, including stocks and precious metals. All asset categories will fall together in the coming deflationary environment -- at least for a time. The term "leverage" should become passé for quite a while.

If you buy now, there may be few or no willing buyers when you decide to sell (or are forced to sell). I know this is difficult to imagine after 70 years of real estate appreciation, but the last time the United States experienced a post-bubble, deflationary depression (1929-1933), real estate fell almost completely out of favor and property values fell precipitously. Unfortunately, because of the bigger bubble, I expect things to be even worse this time.

When a liquid asset (like a stock) loses value, you can still sell it, albeit for a loss; real estate is not liquid, so if that market "crashes," you are not able to simply call a broker and sell it immediately. You may find a damaged buying psychology and no buying interest, and find yourself faced with the difficult choice of taking a loss each month or walking away from your investment.

Alas, the rules of the game are changing. I know it will require an adjustment in thinking and old-school budgeting, but if you plan to keep your home and are fortunate enough to still have substantial equity, you must make the decision to live within your means. Pay down debt wherever you can. Work to pay down your equityline, do not use your home mortgage any longer to "consolidate your bills," close that preposterous checking account which automatically adds to the balance of your home loan. Implement a tight and disciplined budget. Become lean and mean. Take at least 10% of your paycheck and tuck it away safely for savings. Safe cash will be king in the coming environment and you'll be able to use that money to make money.

Do not listen to the National Association of Realtors, the CEO's of Coldwell Banker Real Estate, Countrywide Financial Corporation, or anyone else in the industry whose livelihood depends on your willingness to place at-risk your hard-earned money.

Friends, listening to what these folks have to say is akin to walking into a car dealership and asking the salesman if today would be a good day to buy a car.

I have been in the investment real estate business for 25 years and the N.A.R. has never taken any position other than, "Now is the best time to buy real estate!" They proclaim it in up markets, down markets, sideways markets, active markets, dead markets, high interest-rate markets, low interest-rate markets and this-little-piggy-went-to-the-market markets.

Be ready for the propaganda. Industry people will look you in the eye and maintain that "there is no real estate bubble." They'll goad you by saying that "it's a buyer's market." They'll say that "real estate values in the United States always go up in the long run," (unfortunately, to them, "always" means since 1932. Real estate values collapsed in the U.S. after the Stock Market Crash of 1929 and also dropped an average of 70% over 16 years' time in Japan's very recent post-Nikkei bubble real estate deflation).

The pimps will tell you authoritatively that the last time we had a downturn in the real estate market, it only lasted a few years at which point values took off again. (And they're right; 1990-1993 saw real estate values drop in the U.S. before the glorious run-up began. The problem is, this time it is a post-NASDAQ bubble, post-real estate and mortgage bubble-bubble long-term deflation situation, not a normal real estate down cycle).

Eventually, they'll tell you with great conviction that "we've reached the bottom" and they'll continue to do so year after year after year forever and ever, Amen.

Some folks sold their NASDAQ stocks at the top of the curve in January of 2000; they were the ones who protected their assets and won the first game of the Asset Preservation World Series.

You now have the chance to do the same thing with your real estate.

M&T Announces That the Alt-A (Liar's Loan) Meltdown Has Now Begun. Goodbye IndyMac

Supply, meet Demand...

M&T, a big Alt-A lender, admitted the obvious today, that the buyer pool for their Alt-A garbage has dried up, and they're stuck holding the bag.

The BIG Alt-A player, IndyMac, with 70% of their portfolio made up of this cancer, was out pumping their stock last week, trying to make people believe that since they don't have big subprime exposure, all would be fine with their stock and their Alt-A garbage.

Watch for criminal indictments soon at IndyMac I'd say after this stock manipulation effort. Their lead lawyer resigned last week - hmmm... wonder why?

(Note - I'm gleefully short NDE at time of writing)

M&T Shares Fall After Bank Reports Weak Bids on Alt-A Mortgages

Shares of M&T Bank Corp., the western New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., fell the most since 1998 after saying low bids for Alt-A mortgages it planned to sell will cut earnings by $7 million.

The stock tumbled $9.18, or 7.9 percent, to $106.65 at 10:30 a.m. in New York Stock Exchange composite trading.

Shares of mortgage lenders have tumbled this year as defaults on subprime loans rose to four-year highs. Companies that offer less-risky Alt-A mortgages including IndyMac Bancorp Inc. and Impac Mortgage Holdings Inc. say investors are mistaking them for subprime lenders and unfairly punishing their shares.

CNN on Alt-A "Liar Loans" - "All that nutty stuff is going to disappear"

I took out an October put on IndyMac (NDE) today. I think we all know Alt-A will unravel next in The Great Unwinding. "Liars Loans" to Casey Serins are even more dangerous than lending to poor people with a real jobs. And the pain will be SOOOO much worse with Alt-A than it was with subprime.

Subprime mortgages have been generating a lot of attention, and worry, among investors, economists and regulators, but those loans may be only part of the threat posed to the housing market by risky lending.

Some experts in the field are now concerned about the so-called Alt. A mortgage loan market, which has grown even faster than the market for subprime mortgage loans to borrowers with less than top credit.

Standard & Poor's estimates that the Alt. A market has gone from less than $20 billion in loans in the fourth quarter of 2003 to more than $100 billion in each of the last three quarters.

But just as the Alt. A market has grown even faster than subprime, some believe it could shrink even faster amid growing concerns in the marketplace. That means another pool of money that has supported home sales and housing prices being yanked just as home sales and prices are already in decline.

The loans were very popular with buyers seeking investment property rather than a home to live in.

"There's a reason they ask on the application do you intend to live in the property," said David Berson, chief economist for mortgage financing firm Fannie Mae. "People who live in a property are less likely to default than investors."

"All that nutty stuff is going to disappear," said Ohlbaum. "Everyone today is shying away from the 100 percent of value loan. But anytime there's a big change in the market like there is now, everyone will overcompensate for a while. I think this will last for 12 to 14 months before things are back to normal, and I think you'll see more foreclosures, more people in trouble in the meantime."

The biggest Alt. A lender is Pasadena, Calif-based IndyMac Bancorp. Trade publication Inside Mortgage Finance estimates it did $70.2 billion of the loans in 2006, up 48 percent from a year earlier. As the sector grew, its shares shot up nearly 50 percent in a year and hit a record high in April 2006. But with rising concern about the mortgage sector, its shares have plunged 36 percent since the start of 2007.

But it's not just the smaller lenders like IndyMac in the sector. Like subprime, some of the nation's largest finance firms are major players. Countrywide Financial, one of the nation's largest mortgage lenders, is the No. 2 Alt. A lender with $68 billion in loans, according Inside Mortgage Finance.

"If they get spooked, you'll see the same things that are happening in subprime-repurchase requests, funding sources drying up," said Cecala.

What goes boom must go bust - U.S. housing collapse comes as liquidity dries up

There are days when reading the headlines is like reading "Manias, Panics and Crashes". It's all just so damn OBVIOUS. At least to HP'ers...

Like night follows day, credit crunches and panics follow gleeful financial manias. And now we're here.

My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?

NEW YORK (MarketWatch)

Official news over the last several weeks that lenders from Countrywide to Freddie Mac would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what's changed?

But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: "Do you have an income?" and "Can I see proof?" has one and only one effect on credit supply and demand: a decrease.

And that means liquidity is drying up in the mortgage market.

Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an 'investment property.' And $3,775 when the re-set comes in late 2007.

Whomever it was that first came to his/her senses in this credit madness is moot; it's the fact that his/her action -- that mortgage banker, that CDO trader, whoever -- catalyzed the opposite trend toward probity.

Booms turn to busts not because something 'happened.' They turn to bust because there is simply no other path.

It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.

That credit supply is being tightened means we've passed the 'one-by-one' stage and we're approaching 'all-at-once.'