delbmarcs

The End of the Credit Crisis

I don't think it's the mortgage debt. We've already planned to spend more than the entire mortgage debt shortfall (to-date). It's the leveraged bets expecting the mortgage defaults and all the related leveraged bets against the economy.

Basically, we've been living on false money creation for so long we didn't even know it. That built up a huge, unaffordable over-leveraging. During that time, we all made money on inflation, and now we are going to have deflation remove that money. And it will be real removal of life style, not just a equal division by 1.7 or something that leaves everything relatively the same. That's why even prudent people will owe money to pay for the deadbeats, because we ALL got richer on leverage than we should have (even if we never took a loan).


On Mar 01 04:31 AM Tranquilmeditation wrote:

> I appreciate the author's optimism in a time of despair but this
> is fantasy. For example, 50% of the mortgages in California are
> now under water (negative equity) and real estate prices are still
> dropping. Someone will have to realize these massive losses. <br/>
>
> Not until real estate values stop dropping will this crisis abate.
> No Obama economic team accounting gimmick can rescue this. As real
> estate values crater, business declines, unemployments rises, foreclosures
> increase and real estate craters more: a nasty self feeding cycle.
> It is something, painful as it will be and as much suffering as it
> will cause, we have to go through. Markets work, government's artificial
> solutions don't.
>
> There are a lot of sins that a society can commit but it can never
> fool with its real estate / mortgage markets. They are just toooooo
> big. Unfortunately, that is what we did: supprime, mortgage equity
> withdrawals, liar loans, teaser loans, fannie/freddie, etc. The losses
> are mind blowing. They will need to be amortized by our nation over
> many years.
>
> This is not a Black Swan. This was a guaranteed time bomb put into
> motion by the government's stupid but well intentioned desire to
> have everyone own a home, structured finance thievery and our old
> capitalist friend, unabated greed.
>
> Too bad Aeschylus is not still around. He would of written a wonderful
> tragedy with this material.

The End of the Credit Crisis

I think you are right. There is something missing.

Isn't there some leverage on these defaults that is causing the trouble? The infamous "CDOs and CDSs?" that even Greensapan can't understand and AIG sold without collateral? Isn't it something like: if the loans go bad, the CDOs get valuable for the holder? This I think is the missing "atomic bomb" and why the gov't is trying everything it can to wipe out the home value losses. Despite the fact that the home values were inflated falsely - and now we are trying to keep them falsely inflated.


On Mar 01 08:03 AM MJJP wrote:

> Something is still missing from the puzzle.Something is wrong and
> we are not being told. People never bailed out on mortgages just
> because the value of the home was deteriorating. Home values go up
> and down all the time for any number of reasons. So far the unemployement
> rate is only around 8% or so and that should'nt trigger a massive
> wave of defaults. If the homeowner is still working they should still
> be paying. Secondly if the banks loaned out more money than was prudent
> using the ratio of deposits on hand why isn't the savings rate interest
> rising? Come on they think people are going to put money into a CD
> are 2%!