Pretty amazing television really. Mind you I think he was on the money. Saw him on Daily Show last evening, good interview. His concern is with those who are REALLY going to hurt not with a few whining billionaires down to their last couple of billion.
Yeah....you don't see those stuffed shirt analysts up there with their pretty white smiles going off like that. That woman who was co-hosting was trying to do just that....calm everyone down, nothing to see here, everythings going to be A-OK, no market crash coming, just keep consuming and everything will be just dandy.....Cramer wasn't having it.
Here's a later interview of him explaining himself, and really saying he is trying clear his concious.
What is history telling you about the state of the current market? Personally, I don't see a dip, or even a crash in the housing market as having a huge impact on the stock market. Especially since the housing market is overinflated. It will just be knocked back down to size. Happened to both New York and Texas in the recent past, no?
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Great men always have too much sail up. - Christopher Buckley
The problem is going to be that even though there is market correction, and house prices drop, people are not going to be able to afford the houses anyway. There aren't going to be anymore risky lending practices for a while, because the industry is seeing some big names go down, and the survivors aren't going to want to follow suit. Lending practices are going to favor less risky loans, loans that the majority of the populace aren't eligible for.
Those that are able to afford their mortgages are going to see the value of their home drop so much due to the saturated market, that the house they payed $350,000 can now only market for $250,000 and because of the ARM they got into, they aren't even making principal payments yet.....they have negetive equity. So new consumers can't afford to get in, and people that are in, can't afford to get out and eventually get forclosed on.
Now the bank has a house that they can't sell, so what they have the collateral. Banks can't generate money based on collateral they hold, they can only generate new money based on the Fractional Reserve Requirement of existing debt money vs. new debt money. So because of the sweeping forclosures, banks are more restricted in thier ability to loan money, because their existing debt money vs. new debt money is getting smaller and smaller.
So as the banks ability to loan deminishes, debt deminishes (remember you went bankrupt, and are protected from that debt now). And debt is money. Paper money isn't money...your ability to assume debt in the form of a loan is the money that runs the world.
Now, the housing bubble is burtsing, but there won't be another industry to save it, because lending is going to become restricted and you won't be able to afford buying a piece of that industry. Oh yeah, and there also won't be an industry to save the burst, because people won't be able to lend and consume. So there won't even be any consumption to drive the growth of an industry. So as consumption goes down, stock values drop.
People are going to get scared (if they aren't already) and there is going to be "a run" on the stock market.....
sorry for the length, it is pretty complexe, but the right pieces are in place to make this happen......flame on
Last edited by Sapperwhite : 08-10-2007 at 08:28 AM.
Sapper's correct. Lending is really a huge inflated bubble built on the illusion of equity appreciation in real estate. But that equity appreciation is merely a perception and not based on any change in the equity. How can a property be worth $1mm today and $1.5mm the next day with no improvements? It can't.. it's all illusion... slight of hand. Yet it precisely this increase in value which results in a consumer spending and debt.
When someone can't service their debt on a property and try to sell to get out.. the prices drop... the illusion of value is gone.. the emperor is revealed to haven no clothes. The flock reacts and the whole system ripples with panic and starts to deflate.
I also think Sapper's got it right; the phrase "house of cards" comes to mind.
But then, I can afford to feel smug as we cashed out in early June.
Then you did the right thing...you sold the smoke and mirrors while someone was willing and able to buy it. Now you just have to worry about the value of your dollar that you made on that transaction.
If you sold your house while a dollar was worth 80 cent, next year if that same dollar is only worth 70 cent, you may still lose a little, unless you can find the upswing market, or foreign currency to invest in.
Precious metals are OK, but they are compared in dollar value. An ounce of gold today can buy the same amount and quality of product (whatever that may be) that it could buy in ancient Rome. The thing is that the price of gold goes up because the purchase power of the dollar goes down.
Going back to a gold and silver standard is a cool idea, but metals can be manipulated just like a fiat dollar can be. Hell, you can melt your gold down, and slip in some cheaper metals to dilute its purity, so long as the vendor you are spending that coin at is none the wiser.
Wilson seriously screwed this country when he allowed the creation of the Fed. He gave away the governments power to coin money to a bunch of bankers.....what did he think was going to happen?
The percentage of people who will get hurt is minscule.
The vast majority of people can easily withstand some price depreciation. It won't be pleasant but it can be tolerated. Do you panic when your automobile depreciates by half in 2 years? Granted, a house is much more expensive and the expectation is for it to rise to infinity.
The reality is that the majority of home owners have had plenty of appreciation and can afford a 10% or even 20% cut in home value. Won't like it but it can be managed.
Some mortgage companies will go under and many of the financial institutions that made risky bets in this market will get hammered but the rest of us will be fine once the hysteria passes. 15,000? I doubt it; but 13,500 to 14,000 is probable which is still aproximately an 8% rise for the year.
