And then the Great Housing Ponzi Scheme ended for all to see, and the blood ran in the streets

Remember "Discredit" from Manias, Panics and Crashes. Then go pick up a Wall Street Journal, and it will all become clear my friends. It hath been foretold.

Credit Woes Hit Stocks Again

A host of housing and mortgage-related stocks have seen punishing selloffs in recent sessions as investors moved to flee at the first whiff of trouble.

Countrywide, Accredited Home Lenders and Beazer Homes are among those who have endured precipitous drops, regardless of whether the problem was more imagined than real.

Bear Stearns was getting crushed after Standard & Poor's cut its rating outlook for the broker to negative from stable. Earlier this week, the company said it is facing losses in a third mortgage-related fund. Bear Stearns, which has lost 19% over the last month, was down another 7.5% to $106.90.

And then the music stopped, with the investment banks stuck holding the bag

Remember these words from Manias, Panics and Crashes.

"This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'."

And then right on schedule, this headline from today, and a plethora of words that seemingly were ripped out of Manias, Panics and Crashes and plopped right into this story of what's going on:

Credit markets leave banks saddled with £250bn of debt

Leading investment banks on both sides of the Atlantic are saddled with almost $500 billion (£246 billion) in agreed leveraged loans that they are unable to parcel out to other investors.

New figures from Dealogic reveal that in Europe the banks are struggling to clear a backlog of $208 billion worth of leveraged loans that they would normally have sold on through syndication.

In the United States, the figures also show that investment banks are stuck with $269 billion of agreed loans that they are unable to syndicate.

News of the glut of debt on the banks’ balance sheets comes as the shake-out in credit markets produced new casualties as global markets were racked by further volatility.

Guess what folks - when the banks are stuck with massive LBO and CDO on their books and they can't sell it off to the next sucker down the line, what do they do? They damn well don't issue more debt.

Welcome to "Discredit". And welcome to a severe contraction in the ability to take out a new loan to buy or refinance a house.

We have way too many houses, way to few able buyers, and it's just gonna get worse.

Manias, Panics and Crashes on "Discredit" and the scramble to unload at greater and greater losses

One more time, so you know what's happening, and what's going to happen.

There should be no surprises for HP'ers. None. It hath been foretold.

From the HP Bible "Manias, Panics and Crashes" by Kindleberger:

* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.