Yes, but with the incentive of $250-500k tax free thanks to congress is it really reasonable to think folks won’t take this gamble. The odds simply look to good to resist.

- Transformation (and the government encouragement thereof) of the economy from one of production to one of consumption.

This change was largly encouraged by the inclusion of consumption, and especially government expenses, in the GDP numbers which underpin many economic models of fiscal health at a national level. It’s much easier to outspend your revenue when that very spending inflates your abstracted well-being as a nation, and it’s totally inaccurate. The destruction of competative production as the primary means of national wealth will make it very difficult for America to emerge from a crisis of consumption ability.

- Manipulation of the CPI

It’s hard to understate the systemic, long-term, subtle, and very destructive consequences of changing the fundamental way the CPI is calculated to intentionally underestimate inflation by even ~4%, which the government did, primarily with product substitution and hedonic regression. This change enabled, and still enables, the Fed to create easy credit and ignore the inflationary results, and skews the financial markets to the extent that they rely on the incorrect data for long-term value approximations. When it becomes more widely understood, it will irreperably harm the US’s reputation as a transparent investment nation, and could destabilize our currency. And this is not even considering the systemic harm to every program indexed to the CPI to compensate for cost-of-living adjustments.

- Lack of transparency and granular control of investments

Many, many people put a lot of money into relatively opaque mutual funds which invested in all companies matching certain criteria, good and bad, regardless of their performance (eg: S&P500 index funds). This carte blanch has enabled big corporations all manner of excesses at the expense of investors’ long-term equity: executive compensation, chasing short-term returns with high-risk leveraged investments, selling MBS’s to “safe” funds, etc. This, I would guess, will be one thing which will change as fallout from the current correction; the market is ripe for an online company to offer much more granular investment control while retaining the benefits of mutual fund style aggregation, and someone will capitalize on the need. In the short-term, however, I would qualify this as another primary contributer to the current situation.

Hope people find these points interesting.

“The danger is that … the recent credit
extension … might induce greater risk-taking,” Lacker said Thursday in
a speech to the European Economics and Financial Centre in London. That
“in turn could give rise to more frequent crises,” he said.

From USAToday

Yes, rates went down making loans attractive thru various financial vehicles and tools.

But, I suspect some people that did receive loans probably wouldn’t have qualified for a Sears credit card.

However, sub-primes loans, well, I think my dog was getting offers in the mail to apply.

So, once a lending insititution had a ‘bundle’ (say 10 sub-prime loans with the value of each at 1 million dollars for easy math) of sub-primes loans they were allowed to package those into securities – Say one giant 10 million dollar security/bond backed by 10 one million dollar home loans).

And the Bond rating companies pretty much rubber-stamped those AAA-grade. Then the security was chopped-up (perhaps sold as a whole if you find a buyer) and spread around the world.

It worked until, I think, investor started to get a little spooked on what was actually backing-up the security – Sub-prime loans that are now racing into record defaults.

Then people went – Well, if the bond companies rated those AAA what else did they rate AAa that isn’t….

Ta-da – Credit Crunch.

Who has what? Who knows?

How much is this going to cost? Who knows?

How many people are going to be in default? Who knows?

Who saw some ‘record’ profits over the last years and some pretty high stock prices? Wall St. (financials)

Who made the bad loans and placed bad bond-ratings on them in which everyone gets a little piece of the pie? Wall St.

Who is paying for all this? You. Me. The tax-payer.

Where does the instant gratification lie? Not with the tax-payer or people getting foreclosed on. I see Wall St. was rubber stamping – Instant Gratification on their bonds/securities backed by risky loans.

If bond rating companies had not played the game in the name of the dollar that would have been another point at which someone should have said – Hey, maybe this loan shouldn’t have been made OR this bond should be rated a B-grade bond. Nope. Didn’t happen because it ‘hurts’ business.

The in steps The Fed ‘using it’s power’ by helping save an investment bank (BearSterns) when The Fed is NOT charted to help investment banks (just commerical banks). This Fed action is completey unprecendented in it’s scope and all of this pretty much happened over the weekend when BearStearns failed. A weekend people.

Nobody noticed or is concerned about this???? (No, I am not voting for Ron Paul either)

I am not so sure I trust the people that msde the problem to have access to tax-payer money and Gov’t-backing of loans to solve the poblem. Why not just lock the fox in the hen house??

(Oh, and more than likely all the lending companies will have to ‘raise’ rates in the future to ‘help’ offset some of these ‘costs’ which means, again, in the end you and me will likely pay more in the future. Great!)

Doesn’t subprime mean – Not prime and therefore more inherent risk?

Anyway. Coffee time!!!

Sean, dude,

It is just human nature to get what you can when you can get it. Nothing will ever change no matter how many lessons you throw at people. Where I live which is going through condo auctions every weekend, this same thing happened back in the 80’s. It is all a cycle. People will remember for a while, forget and then do the same thing again – maybe different people, but they will do it again. And believe me, when I see the cycle start again, I will be buying and selling but getting out before the cycle crests. Give it time.

Noah@ShortOnChange.com

http://www.ShortOnChange.com

It is just human nature to get what you can when you can get it. Nothing will ever change no matter how many lessons you through at people. Where I live which is going through condo auctions every weekend, this same thing happened back in the 80’s. It is all a cycle. People will remember for a while, forget and then do the same thing again – maybe different people, but they will do it again. And believe me, when I see the cycle start again, I will be buying and selling but getting out before the cycle crests. Give it time.

Noah@ShortOnChange.com

http://www.ShortOnChange.com