Sean Olender

Downey Financial's Problems Run Deep

Fantastic. I bought puts on Downey in July -- but just after a share price bounce, so they weren't cheap, but they are up 248% as of today. Had I gotten in when I wanted to, I'd be looking at a 475% gain. I had been looking into it for six months, but I'm both lazy and not a trader. I had to open an account just to buy the puts!

Financials have to get hit now on the edge of the apocalypse. There's no way to write off that bad debt and the remarkable historical highs in defaults are coming with low unemployment and low interest rates. If there's a recession (and I can't imagine how there won't be one), and rates head higher, Armageddon will ensue. How we can have this level of defaults and delinquencies in the midst of an economic boom should terrify people. A small downturn will wreck total havoc on the financial markets.

This author's writing as well as the financial news appears to be basing the most pessimistic valuations on current economic conditions persisting. I haven't seen a forecast that takes into account rising unemployment and a recession. And rising unemployment and a recession is almost certainly what we are facing.

It is desperately unfair for government not to be warning people about this. It appears that the goal is to use the public to fund a "quiet" exit from these risky assets, both in providing a market and in government bailouts.

This is going to be a very dark episode in American history and I hope the American people realize after this who they can trust and try to remember it for more than five years. The same carpetbaggers return immediately when the public memory fails to recall the last fleecing. We're at a point today when the public can't even remember the last serious recession and has no idea how to behave responsibly. Banks offer credit accounts as a way to "save money" and "build wealth" -- no one remembers anymore that wealth is built primarily from deferring consumption and using the proceeds (savings) to invest. That's going to be a painful lesson.