End of Consequenses

[Jelly]

I love this. Echoes what I believe: Long term is now swing. Short term is now minutes. And if you can cheat, do it.

http://www.minyanville.com/articles/index.php?a=15167

[xpiratesxcorex]

I completely agree that the firms who loaned the money should not be bailed out. However, think about those millions of families who are defaulting on their loans and losing their homes. If we allow this to continue it will be a detriment on our economy, is immoral, and serves to help no one. So how would we not bail out the banks, but help the house owners?

[aiki14]

What about if the bailout doesn't actually help? I am not usually a Peter Schiff fan but this article from Wednesday's NY Times is interesting:

Frozen Rates, Falling Prices
By Peter Schiff 26 Dec 2007

THE Bush administration’s mortgage rescue plan will worsen, not alleviate, the problems in the housing market.

We are suffering from a home value crisis, not simply a credit crisis. If home prices were still rising, defaults would be low, investment returns would be high, borrowers would still be cashing out equity, and lenders would be showering credit on home buyers.

Falling prices reverse this dynamic. A recent study by the Federal Reserve Bank of Boston found that most foreclosures result from falling home prices, not from the resetting of mortgage rates.

And if rates are frozen for some subprime mortgages, standards for most new loans will become increasingly strict. Lenders will have to factor in the added risk of having their contracts rewritten when borrowers default. Higher down payments, mortgage rates and required credit scores — along with lower loan-to-income ratios and perhaps the death of adjustable-rate loans altogether — will further push down home prices.

Whether or not their payment levels are frozen, borrowers with loans that are greater than the values of their homes will have few incentives to keep paying their mortgages or to maintain their properties. Why spend more on a home in which they have no equity and which they may lose to foreclosure anyway?

Having put nothing down or having extracted equity in previous refinances, most subprime borrowers will lose nothing financially from foreclosure. In some cases the low teaser rates allowed them to pay less than what they might otherwise have paid in rent. The real losses are borne by the lenders.

Proponents suggest that a rate freeze will buttress home prices by keeping foreclosed homes off the market. But that is a stay of execution, not a pardon. Most homes temporarily saved from foreclosure will continue to depreciate as new buyers fail to qualify for loans. Lenders will be on the hook for even more losses than if the foreclosures had taken place sooner.

Everyone seems to agree that a return to traditional lending standards is a good idea, but no one seems willing to accept a return to rational prices as a consequence.

While the bubble was inflating, self-serving explanations were offered for why traditional formulas of home valuation no longer applied. As it turns out, the laws are still in effect. These traditional measures, like the relationship between home prices, rents and income, indicate that prices need to fall at least 30 percent more nationally. The sooner this balance is achieved, the sooner lenders will again commit capital.

Peter Schiff is the president of a Connecticut-based brokerage company and the author of “Crash Proof: How to Profit From the Coming Economic Collapse.”

[Jelly]

I read that as a little bit tongue in cheek but the main points are real enough. All discussion around the "crunch" is information that feeds the big picture of the potential for the doomsayers to be right or, hopefully, not so right.

Those of us without too much experience in the market probably temper our trades with the looming threat of a big crash. I know I do. They make it so easy to be paranoid. LOL

As of this morning, the body attitude is better and bullish. I'll continue to follow the microtrends I see. The macrotrends are still the Olympics and the election, IMO.

BTW: I would rather copy/paste an article so people don't have to go to a different site but I always though copyright made it cleaner to link and not copy. Is that right?

[BuyOnDips]

There shouldn't be any bailouts. Government interference or meddling usually makes things worse not better. Let the market work things out. Housing prices rose almost 90% from 2000 to 2006 according to the Washington Times article. There has to be a correction. Lots of people gambled and lost. Most of it was caused by greed. There are plenty of $400,000.00 mortgages on $200,000.00 houses. This problem won't go away quickly, but will resolve itself soon enough.

http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20071226/BUSINESS/572777982/1001