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If this doesn't scare you, you ain't read it yet...

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March 14, 2008 – Comments (9)

I heard about this report from Fool friend Whitney Tilson last week. Today, I see one of my favorite bubble blogs has posted it. I suggest you read it very carefully.

Bernanke ought to read it too, and if they can get him away from the white house laundry chute, they might consider doing a finger-puppet version of it for President Bush. Pay particular attention to the way that rate cuts have done squat to lower home mortgage rates lately, reflecting the fact that free money in the face of a massive bubble equity overhang means nothing but inflation.

No one wants to lend because they know people are overstretched and can't afford regular loans at reasonable spreads. The mortgage market is telling us that things are going to get worse, and its making the news a self-fulfilling prophecy.

Sj

9 Comments – Post Your Own

#1) On March 14, 2008 at 4:01 PM, abitare (81.12) wrote:

First! Great find, great post. To pile on:

Nouriel Roubini: The Housing Debate: "it is not going to be okay"

If you are really scared:

Systemic Risk Investment / Insurance; A buy list outside of Stocks

John Bogle the founder of Vanguard Index funds is on Bloomberg.com the video is worth watching.  He view is outstanding. 

SKF, SRS is working for me.

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#2) On March 14, 2008 at 4:39 PM, floridabuilder2 (99.34) wrote:

guess i need put the red thumb on mbia and abk this weekend.... 

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#3) On March 14, 2008 at 4:43 PM, TMFHelical (99.12) wrote:

Seth,

Yes, lending is down due to fear and uncertainty.  But not for all.  I had no trouble whatsoever closeing on an increased HELOC this week, at a nice prime -1% with my local bank (my previous loan was at prime). They loved to see me, due likely to my good credi,  > 50% home equity (even after the loan), and history with this small local bank of overpaying my previous HELOC.  And I will be using some of this for some consumer spending (Disneyland, appliances, new used car).

The point is not everyone is outstretched and the lowered rates get people like me to borrow.  It may be a dribble against the tide, but the fed is somewhat limited in the tools they actually have.  Many blame the mess we are in now on the past fed - and while not blameless to be sure, laziness amongst those who traded (and especially rated) debt is more to blame in my opinion.  Tilson's pointed issues with Ambac and such are examples of this laziness, compounded by greed (arguably the laziness was more in Ambac's and MBIA's customers who should have realized that their backing was hollow).

 

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#4) On March 14, 2008 at 5:06 PM, TMFBent (99.81) wrote:

See helical, you are sort of supporting my underlying argument which is this: there are plenty of other helicals out there, who are good credit risks, and who can borrow on reasonable terms. That's why the Fed needs to leave its mitts off the economy insofar that its goal is to increase lending back to the unsustainable levels that preceded this problem.

There are enough good, responsible Americans out there to keep the economy chugging along nicely. Let the market work things out, and we'll deploy our capital (wisely!). Keep trying to "fix" it so things get back to unhealthy, and the Fed will only end up failing to meet that goal, as well as ruining the savings of those who did the right thing. 

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#5) On March 14, 2008 at 5:30 PM, mickeyc21 (29.90) wrote:

Heli - Let me see if I understand you. You are boasting about borrowing to go to Disneyland? You don't have the money to go to Disneyland and the bank lending you the money to do so is good news for our economy?

You may have summed up in one paragraph our entire economic problem. 

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#6) On March 14, 2008 at 5:44 PM, AnomaLee (28.82) wrote:

"And I will be using some of this for some consumer spending (Disneyland, appliances, new used car)."

Hope you borrowed enough to pay for that $14 hot dog & drink. Have fun on your trip.

mickey said everything to be said... Now, I'm leaving to go buy a new stereo system and gold chain with my MasterCard...

 

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#7) On March 14, 2008 at 7:38 PM, mickeyc21 (29.90) wrote:

Heli - Let me see if I understand you. You are boasting about borrowing to go to Disneyland? You don't have the money to go to Disneyland and the bank lending you the money to do so is good news for our economy?

You may have summed up in one paragraph our entire economic problem. 

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#8) On March 14, 2008 at 8:51 PM, TMFHelical (99.12) wrote:

Heli - Let me see if I understand you. You are boasting about borrowing to go to Disneyland? You don't have the money to go to Disneyland and the bank lending you the money to do so is good news for our economy?

Heck yes, it is good for me and the economy.  Sure I have the money, but I choose to keep it invested when instead I can borrow at what amounts to a tax deductible 5%.  It is not a burden to my cash flow, so it makes sense.   Would you have me use credit cards (I will, cause I get 2% kickback to my kids 529, but then I pay it right off).

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#9) On March 17, 2008 at 7:49 PM, FleaBagger (28.20) wrote:

Way to go, Helical, you're a man after my own heart. But I think what you're invested in will probably go down in the next 2-6 years unless they dig precious metals out of the ground, sell most of their things for foreign currencies, or come out with huge blockbuster drugs that generate enormous dollar flows that dwarf inflation and taxation problems.

So in that case, it might be better to divest and spend than borrow to remain invested while you spend. I just wrote a blog post explaining (sort of) why I think the S&P 500 is headed for another long stretch of barely keeping up with inflation (which would be the third such 5+ year period in the last 100 years).

Seth- you're right. The problems we have now are due to the gov't not leaving us alone to solve our previous set of problems, and those problems likewise, and so on back into the mysts of time. Just leave us alone, Ben Bernanke!

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