The Impending Second Great Depression

[FrreeeBird]

*WARNING* LONG READ *WARNING* First off, this is all my work except for the chart which I found via a google search. I have a similar thread in the investments section but they're all about P/E ratios, trading charts, etc which are nice and useful to an extent, but they're not so much about fundamentals and economics (see: reality), plus no one really posts in there too much so I decided to stir the pot in here. Also, don't trust anyone who is currently working in the real estate or lending industry who says their will be a recovery soon in the real estate market, this is NOT going to happen. They are trying to make a buck before they go out of business/get laid off as the market collapses (comissions based salespeople never work in your true best interest, as always). One more preface, this is NOT a left vs right debate, keep the partisan crap out of here please. Bill Clinton (NAFTA) and Bush (Budget defecits, pressuring greenspan to drop the fed rate so low) are both somewhat to blame with their various economic policies, as are lenders, and to an extent the average american consumer, but the MAIN culprit is Alan Greenspan and the fed. Now wait you say, Alan Greenspan? The Fed King who presided for years over our economy, which has done, on the surface at least, very well for nearly his entire tenure. However, in the early 2000s, the fed and greenspan decided that to stave off the 2001 recession that was started as a result of the september 11th attack. The dot com bubble burst and terrorist attacks occuring in such a short time frame (relatively speaking) were a lot for any economy to handle, so the fed made the fatal mistake of cutting interest rates to near zero. (interesting sidenote, many people funneled their profits from the dot com bubble into the real estate bubble, preventing the true effects from the 99 market crash from hurting the economy as much as they could/should have.) Debt was inexpensive, and people and corporations started taking out loans all over the place. So now armed with cheap money, people could afford to pay more for a house without having a huge increase in payments due to the interest rates. Housing boomed all over the country, and people began to have issues buying a house with a traditional 30 year fixed mortgage. Interest rates had began to rise slowly now (2004), due to a fear of inflation after two years of very very low rates, rates not seen in 50 years. So now the rising housing prices combined with a modest uptick in interest rates made housing more expensive. The boom should have ended there, but it did not. Enter in the adjustable rate mortgage, the interest only mortgage, 2/28s and 3/27s (2 years of a teaser rate, 28 years of variable, 3/27 is the same thing but with 3 years of a teaser rate etc., these are important) and other exotic loans. Suddenly people can afford to spend even more on housing, so prices continue to go up, and up, and up, investors get involved, as do speculators, driving up prices even further. Many of these 2/27 and 3/28 and other exotic mortgages originated between the spring of 2005 and the late summer of 2006 (also important). It was also during this run up, which started in 99 but really gained speed in 2002, that lenders started abandoning lending standards, and going predatory. No down payment? No problem. Bad credit? No problem! No job or insuffecient income? No problem!!!!! Enter in a number of new homeowners driving up prices and demand even more. Lending institutions were banking (literally) on real estate continuing to boom, with the theory that as these loans reset and people couldn't afford the payments and were forced out of their homes, the bank could swoop in and sell the property at a profit over the original loan plus interest collected in the interim. They would loan to anyone for any property, why not, wait a few years, collect interest, foreclose, sell property at a profit, or if people could afford the loans the banks would make a killing on the payments anyway. Prices went up and up and up and up, and an interesting thing began to happen, people began to feel wealthy as their house appreciated in value, so they began to cash out some of their newfound equity through home equity loans, a loan against the value of your house exceeding what you owe on a mortgage. This money was funneled into consumer spending (which accounts for 70% of our economy) which was a boon to growth. Lots of retail companies did incredibly well, prosperity rippled across the economy due to influxes of spending from the home equity loans and other debt which had been made cheap by the fed. Not only this, but the housing boom was fueling huge profits in REITs (real estate investment trusts, almost like a mutual fund based off of real estate, and yes I know thats a basic summary of how REITs work), and at homebuilders, and places that did business with homebuilders like home depot and lowes (more stock bubble build up). Profits went up, stock prices went up, mutual funds went up, everyone was happy. Which brings me to the corporate and investing side of the bubble: leveraged buy outs (LBOs), merger and aquisitions (M&A) and collateralized debt obligations (CDOs). Quick explanation of the 3 acronyms. LBOs are where a company will take out a loan (cheaply due to the low interest rates) and buy back outstanding issues of stock, as it was cheaper to pay interest than it was to pay dividends, plus it drives stock prices up which is great for those who have options (CEOs, etc, no conflict of interests there). So this drove the stock market up artifically, as did M&As. M&As were made cheaper because hey, loans were cheap, interest rates were low, just issue some corporate bonds and buy or merge however you want, this, once again, has been driving stock prices sky high. So now we have a real estate bubble, and a stock market bubble. Enter in hedge funds and mutual funds and the CDOs. CDOs are debt obligations made up of several buckets of loans of varying qualities, the idea behind them being they could increase profitability by bundling risky subprime mortgages and other exotic financing in with prime (less risky) loans of the variable and fixed type. Higher profits from the higher interest payments from the subprime loans, no increase in risk as the majority of the loans in a CDO are prime, sounds perfect right? Not only this, but the banks who created these securities made a killing selling them, driving up their stock prices as well! In theory this is perfect, which is of course how the sellers and buyers of these loan packs have priced them until recently (more on that later). Hedge funds and mutual funds have bought several TRILLION dollars worth of these securities. Hedge funds and mutual funds that lots of people are invested in directly or indirectly. As the subprime loans go bad, they start to eat into the other parts of the security, damaging the value. How badly? Bear Stern recently had two hedge funds worth 9 billion dollars become essentially worthless as the subprime tranches of their CDOs made them unsellable. Creditors called looking for money and Bear couldn't sell the securities on the market, their theoretical price for the security, which they paid in actual money, was completely irrelevant. 9 billion out of several trillion, a tip of the iceberg. So now we have a housing bubble, a stock market bubble, and trillions of dollars of securities in the hands of hedge funds and mutual funds that are becoming nearly worthless. Enter in higher interest rates (starting in 2005 the rates went back above 3% and plateu'd at 5.25% in mid 2006 and has remained there since, also aprox 18 month lag for full effect to be felt economically in normal times without the housing mess) and the impending crash. The higher interest rates were called into play by ben bernake to attempt to fight off inflation from rising oil and food prices, he had to do this, things were beginning to spiral out of control as the dollar weakened significantly. The effects? We'll start with the adjustable mortgages, which are playing a big part in whats going on. These mortgages have become significantly more expensive as payments go WAY WAY up with the rising interest rate, and this is just with normal prime adjustable rate mortgages. People with 2/28s and 3/27s are in an even worse situation, remember how I mentioned the peak of hte housing boom being spring 2005 through late summer 2006 . . . . thats when tons of these loans were made, so now they are all resetting with an even greater price shock than an adjustable rate ARM. 2005 + 2 = 2007, 2006 + 3 = 2009 . . . . 2007 through 2009, thats how long this housing crash is going to last, 3 years at a minimum. The below chart shows only the subprime arm resets, not the prime, which are "safer" and "less likely" to go into default ("" denotes heavy sarcasm). It may last even longer than this as the higher interest rates, tighter lending standards and regulations and millions with ruined credit histories will place even more downard pressure on demand. So suddenly, large numbers of people are going into foreclosure because they can't afford their loan payment resets, houses are flooding the market, pushing prices down. This flood of homes onto the market has been exacerbated by home builders building huge number of homes to ride what they incorrectly assumed as an almost never ending housing boom. Making this even worse is now interest rates are higher, people can't afford to pay as much for a home. And housing begins to unwidn at the end of 2006. As 2007 begins loans reset and people begin to miss payments and foreclose, dozens of lending companies have been wiped out, with more to come. The result of this has been a huge tightening of lending standards as lenders realize they've royally [freak]ed up, causing even fewer people to be able to afford a house. Prices begin to plummet, houses are vacant, people who can afford their mortgages are suddenly upside down on their loans, i.e. they owe more than their house is worth (due to the price drop, or due to the price drop and a home equity loan). This is a widespread issue, not localized to socal or florida, a national collapse of housing prices. Not only does the huge reduction in prospective buyers hurt prices, but the vacant and foreclosed properties severely damage the value of surrounding homes as well. A much less mentioned side effect of this collapse is people have been using credit cards more and more often to try and stay afloat as their mortgages reset, and when they default on those payments as well the credit card companies are going to take a biggggggg hit, yet another stock market bubble popper. Now on to how the rising interest rates and defaults hurt corporate america and the stock market. So housing collapses, and people can no longer take out home equity loans, people feel much less wealthy, tons of people go bankrupt, and consumer spending, the biggest factor in our economy, and economies around the world who export to the united states, sees a HUGE reduction. Corporate profits, GDP, employment, are ALL going to suffer as people tighten their belts through choice or by bankruptcy. Losses are on the horizon for lots of companies, and its going to cause the stock market to come crashing down (as it has already sort of), causing people to be even more fearful of spending money (vicious cycle). All you have to do is look at the earnings forecasts and guidances being put out by retailers, things are not looking rosy and we're not even fully into the housing crash yet. People have gotten leveraged to get into the market as well, more bankruptcies! weeeeee! The M&A and LBO activity has also really dropped off as a result of the interest rate hikes and tighter lending standards. Deals can sour for corporations too, and lenders are starting to be fearful of defaults at higher levels. So M&A and LBO activity which has driven stock prices sky high over the past 3 years is now almost dead, bye bye stock bubble. And the banks, god, the banks, oh man, the banks the banks the banks. Banks are going to disapear, big well known banks and investment houses WILL be wiped out by the foreclosures on mortgages, Credit Card losses, CDOs going bad, etc. Rates and standards are going to be high for years, putting even more of a damper on growth and recovery. This is not an instance where the gov't can step in and bail people out, trillions of dollars in actual obligations are at risk, we can barely pay for a war costing 100 billion a year. This economic collapse is going to lead to big time layoffs, which is going to just make things even worse in housing, which gives us yet another vicious cycle on the whole. I can go on and on and on, but basically, we're at the spring that feeds shit creek and we don't even have a boat, let alone a paddle. The crash is going to be ugly, and the recovery could take a decade or more. If people want me to expand upon specifics or ask me questions about other effects this will all have let me know. cliffs: We're about to see a collapse in the housing market, stock market, a bank crisis and an economic/credit crisis all at the same time. Think 1929 style but worse. Modified by Chubz at 5:01 PM 9/30/2008

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[chet]

whenever there is a boom in any market...the chances of a recession are greater.

first, the lending industry became greedy as more people began to buy houses. builders also became greedy and during this boom...they made excellent profits. those who had the foresight to see the downturn in the market got out...those who didn't are now holding onto excess housing and mortgages which are going to re-adjust.

now, what does this mean? lenders knew many people would default and gave mortgages away anyway...figuring the housing market would continue to rise long enough to get their money on the back end after the real estate was foreclosed upon and resold later on down the line.

i don't believe however...that this problem will hurt our economy enough to cause a major recession...and we'll see that real estate grew in value at its normal rate over a 20 year period...with a jump during the late 90's...and a fall approx 10 years later.

basically...those who were greedy and wanted a bigger return on their money were caught at the end with mortgages their customers couldn't afford and real estate which wasn't worth what they anticipated it to be worth. i know its crazy right now in florida...and over the next few years i hope to take advantage of a real estate market which has seen its value decrease dramatically over the past 5 months.

[FrreeeBird]

Originally Posted by chet

i don't believe however...that this problem will hurt our economy enough to cause a major recession...

Can you elaborate upon this further?

[electric-boost]

I make it rain on them hoes!!!!!!!!!

Im ready for it.

[chet]

Originally Posted by FrreeeBird

Can you elaborate upon this further?

well, i look at things like this.

our economy is based upon buying and selling at fair market value. when there is a boom in real estate...the value is inflated...and at some point we'll see a downturn because houses are not worth what some people are paying.

for example, in this area (the tampa bay area) houses skyrocketed in value. 2000 sq ft houses that were purchased for 250k rose in value to 350k+ in a couple of years. were these homes really worth 350k? well...to buy a house in this area it took 350k or waiting until home values decreased in value...and nobody was predicting that in less than a year the recession in this state would be so dramatic...

and i'll be the first to admit...i learned a lot about the fla real estate market because i think it rises and falls as much as anywhere in the country. developers in this state have been going crazy for at least 10 years...and as more and more people moved to this state insurance prices rose along with real estate property...

however, this state and more specifically this area only has enough infastructure to support x number of jobs. as home builders continued to build these homes and began competing with one another...they began to saturate the market and only so many people were making the money it took to buy a house and pay the mortgage.

thus...we're seeing home builders drastically reduce the sale prices on their homes to get rid of the excess inventory and they are now "taking a loss." well, are they really taking a loss? no, because it only costs x amount of dollars to build these homes and while they were making huge profits on the first homes sold...they are now forced to drastically reduce prices at fair market value (or better than fair market value) to make up for the slow pace of the current market...

hence the reason capitalism is so great...and why those who get caught up in trying to make huge money get burned unless they get out of the market before everyone else.

[FrreeeBird]

Chet, you didn't explain why you don't think housing isn't going to have a large negative effect upon our economy . . . .

[lildrgn2.0]

Most likely the housing issue will hurt, but I dont think we will see a depression. Besides that, a depression is nothing more than a perspective. Nothing really changes except confidence.

The loan market is in a shift right now to get people moved over to fixed rate loans. Lenders really dont want your house. They would rather you stay in it and pay for it. So when the housing market finally does come to a halt, the only people it will really affect are builders, lenders, and realestate investors. The average home owner would rather default on their credit card payment rather than their house payment.

[who1]

I think some risk (from mortgage loans bubble) has been spread out into these so called CDOs and exotic money funds, and wealthy investors have bought into these funds now hold the bag . NoSome have gotten burned.

I want a lot more to get burned

[FrreeeBird]

Originally Posted by lildrgn2.0

Most likely the housing issue will hurt, but I dont think we will see a depression. Besides that, a depression is nothing more than a perspective. Nothing really changes except confidence.

Uh, I'm gonna disagree here. Depressions are caused by people going into debt and buying buying buying and then they lose money and go bankrupt which kills consumption which kills the economy. Its not a confidence thing, its a money thing.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">The loan market is in a shift right now to get people moved over to fixed rate loans. Lenders really dont want your house. They would rather you stay in it and pay for it. So when the housing market finally does come to a halt, the only people it will really affect are builders, lenders, and realestate investors. The average home owner would rather default on their credit card payment rather than their house payment. </TD></TR></TABLE>

Yeah, but you can't refinance if you're already foreclosed upon or have trouble meeting the adjustable rates, its not like people can walk into a bank and say "convert my arm into a lower payment fixed mortgage please" . . . . theres a reason why they had to get crazy loans in the first place instead of a fixed, because they can't really afford what they bought.

This will get uglier.

[chet]

Originally Posted by FrreeeBird

Uh, I'm gonna disagree here. Depressions are caused by people going into debt and buying buying buying and then they lose money and go bankrupt which kills consumption which kills the economy. Its not a confidence thing, its a money thing.

Yeah, but you can't refinance if you're already foreclosed upon or have trouble meeting the adjustable rates, its not like people can walk into a bank and say "convert my arm into a lower payment fixed mortgage please" . . . . theres a reason why they had to get crazy loans in the first place instead of a fixed, because they can't really afford what they bought.

This will get uglier.

you have to remember that money just doesn't disappear during a depression...

[kNOwLedGe.]

Originally Posted by chet

you have to remember that money just doesn't disappear during a depression...

It does if the Federal Reserve decides to shrink the money supply.

[chet]

Originally Posted by kNOwLedGe.

It does if the Federal Reserve decides to shrink the money supply.

do you mean when interest rates are raised in order to encourage savings and discourage growth?

[kNOwLedGe.]

Originally Posted by chet

do you mean when interest rates are raised in order to encourage savings and discourage growth?

No, I mean actually manipulating the actual supply of money in the government and banking industry's hands.

They Fed can manipulate interest rates as well, like you said.

[FrreeeBird]

Originally Posted by chet

you have to remember that money just doesn't disappear during a depression...

Ummm, yes, it does actually.

Say you take out an 2/28 arm for a house, you loan out 400,000 dollars, two years later you get forclosed upon because the rates reset and you lose your house. The bank can only sell your house for 275,000 because lots of other people are in the same situation and the housing market collapses. $125,000 no longer exists.

[FrreeeBird]

Originally Posted by kNOwLedGe.

It does if the Federal Reserve decides to shrink the money supply.

Chet meant literally disapear I think, what you're refering to is a disapearance of cheap easily got money from the fed, not an absolute ceasation of exitence.

[slm]

Anybody who didn't think we were in for some bumps in the road, is out of luck. Things were pretty bad in the early and mid 1970s towards in the end of the Vietnam war and I think were in for something similar. However having been at college the last four years, I've been hearing about our country's impending financial doom (and in general) and I'm not holding my breath. Personally I think some of the people spreading this news are hoping for it to happen for their own political gain. That's their business, but I'm not panicking yet.

[chet]

Originally Posted by FrreeeBird

Ummm, yes, it does actually.

Say you take out an 2/28 arm for a house, you loan out 400,000 dollars, two years later you get forclosed upon because the rates reset and you lose your house. The bank can only sell your house for 275,000 because lots of other people are in the same situation and the housing market collapses. $125,000 no longer exists.

what you're explaining is something that happens on a daily basis.

look at a car loan, where someone finances 40k, and they are immediately upside down on the loan.

when you say 125k no longer exists...it never really existed in the first place since inflation pushed the price upward.

an easier way to figure this is by looking at what it costs to actually build a house.

take mine for example, which i purchased for 175k here in st petersburg florida.

given current market value for a piece of property like mine (about 30k for a 60ft by 90ft) in a very average part of town (about 2 miles away from downtown) you can accurately estimate what it costs for the land...and what it costs to build a 1200-1400 sq ft house like mine with "builder grade appliances/light fixtures...etc

i purchased this brand new, and figured it cost the building company around 120k to build total. maybe it cost them 100k, maybe it cost them 80k, however, given the current demand for the house and current market values, it sold for 150k to an investor and then for 175k to me.

the house will NEVER be worth less than 120k because it would cost that much to build again...and it will probably go up in value in this area because there are only so many empty building lots left inside the city. i probably paid 20-30k too much for the house...but i had lost patience and didn't feel like spending more money on rent.

in either case...this is how it works in most situations. obviously there are other factors (like a lack of quality jobs to support the current market value for houses) but its pretty straight forward...and its safe to say that our economy increases at roughly 7% a year given current market trends.

[FrreeeBird]

Originally Posted by chet

what you're explaining is something that happens on a daily basis.

look at a car loan, where someone finances 40k, and they are immediately upside down on the loan.

Correct, except that 40k is in the hands of whomever sold you the car, and now you are liable to pay it back to the bank who loaned it to you in the first place. The bank LOSES $xxk if you fail to do this.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">when you say 125k no longer exists...it never really existed in the first place since inflation pushed the price upward.</TD></TR></TABLE>

Tell that to the person you gave 400k to to purchase the house, and to the bank who gave you the 400k, the bank buys the house, you pay the bank back over time, you don't pay the bank back and it loses the money it lent out and was expecting to get back.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">and its safe to say that our economy increases at roughly 7% a year given current market trends.</TD></TR></TABLE>

Uhhh, no.

[chet]

Originally Posted by FrreeeBird

Correct, except that 40k is in the hands of whomever sold you the car, and now you are liable to pay it back to the bank who loaned it to you in the first place. The bank LOSES $xxk if you fail to do this.

Tell that to the person you gave 400k to to purchase the house, and to the bank who gave you the 400k, the bank buys the house, you pay the bank back over time, you don't pay the bank back and it loses the money it lent out and was expecting to get back.

again...the bank knows when it lends money that there is risk involved. however, they calculate the risk and lend the money at a specific rate over a specific period.

if i pay back the mortage i have (6.6% fixed over 30years) i'll have spent around 300k. in 30 years, the house will probably be worth more than 300k, and the bank will have made money...and i'll have around 300k in equity.

you keep going away from what drives this economy...and that is most products are bought and sold at fair market value...

people make bad decisions all the time, and thats why good financial advisors always recommend against buying a brand new car...because its often times the second biggest purchase a person ever makes in their life and they immediately go upside down on the investment.

and, if you look at our economy over the past 50-60 years it has grown at approx 7%.

[tjbizzo]

Originally Posted by chet

and, if you look at our economy over the past 50-60 years it has grown at approx 7%.

Are you talking about growth or inflation, because they are NOT the same thing. Also, I'm gonna have to raise the BS flag here, so please back up that 7% claim. Thanks!

[chet]

i'm talking about a return on investment in the stock market...which is usually around 7%.

our economy doesn't grow at 7%...i mis-typed that.

[FrreeeBird]

Originally Posted by chet

again...the bank knows when it lends money that there is risk involved. however, they calculate the risk and lend the money at a specific rate over a specific period.

if i pay back the mortage i have (6.6% fixed over 30years) i'll have spent around 300k. in 30 years, the house will probably be worth more than 300k, and the bank will have made money...and i'll have around 300k in equity.

Ok, so the bank knows this, what if the banks and lenders screwed up big time and took way way way way too much risk? What if they securitized large packs of these risky loans and sold them to investors?

Guess what, those aren't what ifs, thats what has happened from 2004 until late 2006. The banks, investors, etc are all going to lose TONS of money, as are other normal everyday people.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">you keep going away from what drives this economy...and that is most products are bought and sold at fair market value...</TD></TR></TABLE>

You're ignoring the fact that there was a speculative run up on housing which then in turn allowed people to take equity out of their homes to purchase goods and services which has kept the economy afloat. People are going to stop spending because they are going broke, this has NOTHING to do with fair market value, NOTHING.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">people make bad decisions all the time, and thats why good financial advisors always recommend against buying a brand new car...because its often times the second biggest purchase a person ever makes in their life and they immediately go upside down on the investment.</TD></TR></TABLE>

Correct, and now tons of people and banks and investors have made huge mistakes on a persons biggest investment in life.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">and, if you look at our economy over the past 50-60 years it has grown at approx 7%.</TD></TR></TABLE>

Ughhh, no, maybe stock market gains, but thats sure as hell not GDP.

[chet]

i'm not disputing the fact that many people have lost and will lose huge amounts of money...

and the reason these people will lose money is out of greed and trying to outwit the system.

i know here in florida, mortgage brokers convinced investors that they could bring great rates of return on their money if they invested in the housing market. these people gave out sub prime mortgages knowing that many people would default...and while its as much the fault of the buyer (who really didn't deserve a mortgage to begin with) as much as it is the lender (who had no business lending the money) they'll both lose as one will take a hit on their credit while the lenders will lose millions of dollars.

this doesn't mean everyone though...and there are just as many people who will benefit from the housing market as they'll buy property at fair or better than fair market value.

i would also argue that anyone who took equity out of their homes to purchase goods or services is absolutely stupid...and deserves to lose their home...

too many people in this country spend money they don't have and this illustrates the problem perfectly.




Modified by chet at 10:37 PM 7/27/2007

[FrreeeBird]

Originally Posted by chet

i'm not disputing the fact that many people have love and will lose huge amounts of money...

and the reason these people will lose money is out of greed and trying to outwit the system.

K good, then you realize that since we're a country dependent upon consumption (thanks NAFTA) and burdened with a weak dollar (thanks GW) that as people no longer have money to spend that the economy is going to tank right? You're so close to seeing it all, I'm here to show you the light!!!!

[james brown]Can you see the light?!?!?!?![/james brown]



<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">this doesn't mean everyone though...and there are just as many people who will benefit from the housing market as they'll buy property at fair or better than fair market value.</TD></TR></TABLE>

But how many people do you know that have 20% DP for a home lying around that will be willing to part with it? Given the fact we're having a stock market crash, and that lenders are MUCH stricter in who the lend to and for the interest rates they charge I'd say not many, not nearly as many as those who bought homes from 2003-2006.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">i would also argue that anyone who took equity out of their homes to purchase goods or services is absolutely stupid...and deserves to lose their home...</TD></TR></TABLE>

Exactly, except TONS of people took LOTS of money out to buy stuff, which has kept the economy going.



And thats just through 2005, it got even worse in 2006, and then in 2007 it crashed, as has consumer spending which is a foreshadowing of whats about to happen to the economy on the whole.

<TABLE WIDTH="90%" CELLSPACING=0 CELLPADDING=0 ALIGN=CENTER><TR><TD>Quote &raquo;</TD></TR><TR><TD CLASS="quote">too many people in this country spend money they don't have and this illustrates the problem perfectly.</TD></TR></TABLE>

Yes, but this issue is going to affect us all, not just those who overextend themselves.

[chet]

Originally Posted by FrreeeBird

K good, then you realize that since we're a country dependent upon consumption (thanks NAFTA) and burdened with a weak dollar (thanks GW) that as people no longer have money to spend that the economy is going to tank right? You're so close to seeing it all, I'm here to show you the light!!!!

[james brown]Can you see the light?!?!?!?![/james brown]



But how many people do you know that have 20% DP for a home lying around that will be willing to part with it? Given the fact we're having a stock market crash, and that lenders are MUCH stricter in who the lend to and for the interest rates they charge I'd say not many, not nearly as many as those who bought homes from 2003-2006.

Exactly, except TONS of people took LOTS of money out to buy stuff, which has kept the economy going.



And thats just through 2005, it got even worse in 2006, and then in 2007 it crashed, as has consumer spending which is a foreshadowing of whats about to happen to the economy on the whole.

Yes, but this issue is going to affect us all, not just those who overextend themselves.

if i'm not mistaken...the stock market has hit record levels recently.