Its not NYT hype... capital contractions, especially this big are not minor blips. Are there doom and gloomers sure?
But the contraction is NOT just the mortgage paper, its a global overall contraction... what does this mean? Does it mean no one can get a mortgage? of course not, but it means fewer people will.. but that’s not the real problem.
The problem is capital contracts, that means needing it gets more expensive..... and for your mom, willing to pay nearly 8% when at one time it was 6% isn’t the end of the world. However if you are an overleveraged business (which many are anymore) and you find your financing rate jumps 2% on Billions of borrowed money, your profitability overnight turns into losses. Just because you cashflow positive today, does not mean you will tommorrow, particularly if you are tied to short term fluctuating debt. Also, even if your existing debt is fixed, when you need more capital in the future, your rate is higher, further harming cashflow.
This isn’t just mortgages, and its not just NYT hype (though I don’t believe its the end of the world, it is a big big problem). To put it in perspective, the S&L Bailout lost about $125 BILLION and anyone who lived through it can tell you that wasn’t just in S&L’s, but caused issues throughout the economy. Current estimates on this one are $200 BILLION... and honestly I believe without question these estimates are FAR TOO LOW.
You can continue to believe this is just a blip if you wish.
Maybe its an above average sized blip. ;-)
The sad part is the money they just threw at the markets is ntoe going to help in the long term. This money will ge sucked up and hte beast will be begging for more. And this does nothing to stop teh arms reseting or foreclosures. I liken it to throwing a case of bourbon to a drunk, it will keep him for a bit but he will run through it in short order.
My point is, as an investor, there are many companies that are beating earnings, forcasting better earnings, employment is high, inflation low, and interest rates have risen 17 times from the low, but are still 5.25%! Most of my life rates have been higher than that.
Until I see some sort of contagion, this is a blip in my book. Maybe a few hundred thousand lay offs later, I'll get worried. The whole world is growing now and I don't think a blip in the US is going to stop it. I will re evaluate when the China Olympics are history. 1.3 billion people buying our crap can't be too bad. GM and Harley Davidson are doing better in China( growth wise) than in the US.
It's good to worry, but sometimes you have to have a cold look at reality and invest like your money depended on it. The NYT should be at the bottom off your parakeet cage.
Just curious, were you alive and over say, 21, when Carter was president? I figure if you were under at least that age you were probably chasing women and getting drunk and didn't care about the people shooting people in gas lines and a 30 page fine print pull out of the Houston Chronicle of repo'd homes. I was buying brick homes for 50 cents on the dollar and had several CD's making 13%- 19%, depending on the time ladder. People literally bought things today because they knew it would be more money the next DAY! We are so far from that type of scenario now, I can't even see a comparison, yet people are talking like the end of the world is coming.
Something I've found over the years is there is an endless supply of money that comes from somewhere. When you are about to blow your brains out, a person come to you with cash from somewhere to steal your assets for 50 cents on the dollar. The people losing their homes will be the ones that had no job, not an adequate job, or had no idea what a zero interest loan with a 3 year balloon was. If someone lied to them, then let them sue, but I'll bet the mortgage company will produce a paper with their signature on it saying they understood all the ramifications of such loans. The truth is, most of these people figured they would buy their Mc Mansion, live in it interest free with low payments for 3 years, and then sell it for 30% more than they paid. Well, welcome to reality.
What is news to me is the companies and hedge funds that bought this paper without a clue they were ALL suspect. How can these Wall Street guru's plop down hundreds of millions and not know the risks they were buying? They DESERVE bankruptcy, and get NO sympathy from me. If they own the paper, they own the property. It can't be ZERO. The injected liquidity was caused by the market REFUSING to buy a pig in a polk. If you bought something for $1000, and no one wanted to pay you $1000 or above, then you must reduce the price. Nobody seemed willing to do that. If someone was trying to sell you $100 million in property backed debt obligations, why wouldn't you just offer them $50 million? When the fire sale starts in earnest, the crisis will be over. Somebody has to accept, they screwed up.( Just like Ameranth was long nat gas as it headed down 50%.)Why on earth would you ride something down 50% on margined money?