Today’s mortgage crisis is similar to the tech bubble in 2002, except it’s worse. Back in 2002 Greenspan bailed out the techies by lowering interest rates and what happened? Home prices were inflated. Today’s crisis is a thousand times worse because banks won’t even loan to one another. The Fed has been aggressive in cutting rates over 100 basis points, but liquidity isn’t there. The stock market is way too optimistic. Housing prices will continue to decline.
But this crisis isn’t just going to devastate the mortgage industry, it’s damage is more widespread. Back during the tech bubble people lost their money due to a stock phenomena. However, this crisis is global and it’s a severe credit crunch. Banks won’t even lend to one another.
And the ramifications? Housing, industrial production, home sales, refi’s, foreclosures, payroll. It leads to risky assets, treasuries, yields will collapse, the GDP is slowing down. The Fed lowering rates doesn’t seem to have much of an impact.
Many in the mortgage industry have already lost their jobs. Back in 1973 -1975 all the hedge funds went out of business. What’s this all mean? Save your money…you’re going to need it.
Copyright 2007 Ev Nucci
ev nucci
14 Comments
February 2, 2008 at 8:12 pm
“Save your money” you say. Great words for today’s economy… but in general, read this posting by the great Robert Kiyosaki:
“Why Savers Are Losers”
http://finance.yahoo.com/expert/article/richricher/1224
http://en.wikipedia.org/wiki/Robert_Kiyosaki
Thank you,
- Steven Burda
http://www.linkedin.com/in/burda
burda.mba[at]gmail.com
February 3, 2008 at 2:01 pm
Steven, great comment and thanks a million for your input. You gave me a great idea for a new post!
February 18, 2008 at 9:54 pm
True words and now Bernanke is in a tough situation because of rising inflation which may prevent further cuts…
I would add though that you be on the look out for opportunities…
February 29, 2008 at 1:50 pm
Jollyjo, you may be right my friend!
March 2, 2008 at 12:46 pm
Super post Ev.
I am not an economic expert by any means, but I think many things are obvious … at least to me.
Free market, supply / demand fluctuations remind me o mother nature. Natural patterns take place, and is seems forcasters will predict long term trends based on the current rise or fall in temperature. A long term graph moves up and down, not up forever or down forever. Sooner or later a balance will occur.
The problem now is the effect of interest rate manipulation, and mainly poor banking practices. POOR BANKING PRACTICES. I bold this one again because in my opinion this is one massive mistake.
I am not in favor of governmental control of anything, but we do need laws, now don’t we. Mortgage companies that created high risk, adjustable rate, pay “only interest”, loans to people with no down payment and an unstable work history …. combined with an un-workable percentage of income / mortgage payment = DISASTER.
The housing market reached a peek by superficial means. Interest drop, and insane lending. Yup, that will cause chaos in the free market. Very simple.
One very strong note … in times of decline, (recession if you like) the opprotunities of investment are prime. You never buy in the stock market when prices are high, you buy them when they are low. SAME with anything. Logic dictates that the bottom, or low to the housing market will come when there is a “natural balance” – not an impacted and tampered with false peek. Will you ever see a home for a dollar? No … a silly compairison, but a reality driven one. Prices always fall to a natural level, no matter how much government tries to manipulate them.
OK … lets go back a bit. As I believe that prices were artificially high … really high, why is it that when they come back to a natural level everyone claims the sky is falling? This was going to happen – how can this be a suprize??? It’s not.
I do not have a cold heart. I feel terrible for those in default. The massive majority of folks in this predicament are there because of “to much house” for there means. I blame lenders exclusively … you cannot get into this situation without an insane house loan.
20 years ago lenders would laugh there *** off if they could look into the future. They would see the risk, AND what would happen. Today, everyone is sitting around like there dog just died.
Just as there are laws against making “loan shark” rip off lending, why are there no controls over risk lending? The banker is not the big looser here – WE ARE!!! I agree that we have a way to go before my “natural level” is hit again. What is it?? What was your home worth 6 years ago. That’s where…. I would wager on this one. The sad part? All other areas of the market will be affected by this as well. No part of the economy is separate from the rest. Oil will rise because of dooms day forcasting … of course, EVERTHING returns back to a natural level. Remember my one dollar house? Nobody buys million dollar gas – except Al Gore. (sorry, I could not help that one)
What do you think Ev?? Am I crazy? I value your opinion highly, and am not looking for a “kind” reply. Just your usual honest one. I love that about you and your writing – you never mince words.
Thanks for directing me here, I never noticed a link from this blog … not sure why. Could be the influx of BIG Bang links. I picked that name you know
… It was a pretty big bang.
http://speedcathollydale.wordpress.com
This is just one of my other blogs. I have lots! Of “course” …. I am sure you can guess what it’s about
Take care Ev, your pal Speedy
ps… The best part about this blog? I can load it at home in 20 seconds. Your blogger blog loads backwards – sidebar first, and widgets / flash kill my old computer. This blog is clean as a whistle. Just like a healthy economy (LOL!!!)
March 2, 2008 at 12:57 pm
Speedy, you are absolutely right my friend. This blog is quick and speedy!
It’s called wordpress….
LOL
And if I could take the other one and move it over here I would!
Brilliant comment by the way. Very impressed. And you are absolutely right, its the lenders my friend!
March 6, 2008 at 2:26 am
Hi Ev! Driving around the blogoshere …
April 14, 2008 at 4:43 am
Perhaps save money, is not the best……Cause Inflation is bout to double
Nevertheless investment is not the best either…… Risk to lose double ………
What to do?
Perhaps, an adge of saving and investing?? ….
Since, mysled losing money on real estate investments at the moment……
some stuff for thinking….
July 15, 2008 at 6:05 pm
The reason the Japanese made it through their crisis is because they were great savers. The question is are Americans? No…they are not great savers and thats our problem!
June 1, 2009 at 1:11 am
OHH Every now and again I find a web site that is a real source of useful information and content. This is one of those. A rare beast indeed. Keep up the good work. Kind regards
July 8, 2009 at 9:10 am
Thank you stock. We’re not out of this crisis yet. We’re a long way’s away. Unemployment is going into double digits…beyond 10%.
And inflation? No one spends their way out of a problem. European socialism is not the answer for a country that’s founded on capitalistic democracy.
Our problem? Who’s going to do business with a government that re-writes bankruptcy law? We expect that in Italy, but not America.
December 22, 2009 at 10:30 pm
Great post and great blog. Do you write using wordpress, if not what platform do you use to blog on?
February 3, 2010 at 9:52 pm
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