If you had a pulse we'd give you a loan - Market Meltdown

My thoughts on the recent NBC Dateline exclusive "Inside the Finaical Fiasco"

A different opinion.

I found Dateline's series on the so called 'mortage meltdown' quite interesting, and I look forward to seeing the remaining parts of the series. After watching part 1, and reading through these comments on newsvine [#]

I think many people have correctly pointed out the bias and 'flaws' of the reporting. I found it quite interesting none-the-less. There certainly seems to be a lot of "blame" to spread around.

My 2cents, for anyone that cares, is that none of this "corruption" in poltics and loan companies and banks really "created" a meltdown. I'm not to say these people are innocent. Certainly, it does not seem very ethical to give a $600,000 loan to someone who only makes $50,000 annual income.

However, let us not forgot that these loans are not "unsecured" (lost money). These loans are secured by the properties in which they went to purchase.

Even if everyone "frauds" me, and even if I commit fraud myself, I end up with a $600,000 home that I cannot afford. What happens when I cannot pay? The bank forecloses and takes my house. Now the bank has a $600,000 asset to cover the $600,000 loan. Even-steven right?

Well, not exactly, Certainly, all of the free flowing money creates "demand" and demand drives up the housing prices. This "over inflation" means that the $600,000 house probably cannot be sold for $600,000. It also creates a large "lull", such taht the value of the house may now ve VERY under appreciated for many years. Though house values do increase, and will continue to increase. So the $ aren't really lost as much as "hidden". At least until the market botoms out, re-adjusts, and starts picking up again. Such is the nature of the investment business. It's a risk, it's always been a risk, there's nothing new about that.

So what's the problem? Eventually everything just stabalizes and we can get back to our normal lives?

Except, for one problem. People are scared, Investors are scared. The more people see the value of their stocks, bonds, and investments depreciate, the more they want to "GET OUT" of the market. We have the "run on banks" (Remember: It's a wonderful life?). People take their money out, because of a rumor that "such and such" company is in trouble. Well guess what, if you take their money out they really ARE in trouble. They need that money for investments, and now they have no cash flow because YOU STOPPED IT.

You listened to what everyone was saying, you followed others, you were scanred (hey it's natural right?). The media picks it up and spreads it to every television across the world. Now everyone is scared and trying to get back whatever money they can.

THIS IS WHAT HALTS THE ECONOMY - THIS IS WHAT CAUSES A MELTDOWN - COMPANIES CAN'T DO BUSINESS WITHOUT MONEY. WITHOUT YOUR MONEY.

It's a self-fullfilling prophecy. A bank maybe bringing in billions of dollars/year, but there's a rumor there about to go under, so everyone takes their money out of that investment, and guess what? Now they have no money. So they burn quickly threw their reserves, but then they have 'deals' with like 100 other banks, who now have to show a drop in their financial books. And guess what that does? It scares more people to pull out money...and so forth and so forth.

Now in the end. If I buy something I can't afford and I loose it - so be it! That's my mess to clean up. If hundreds of thousands of people do the same thing - then there will be a lot of homeless people. But, in theory, so long as investors keep investing money into the system, there will be a drop in the market (a fairly large one). Hundreds of thousands of people may loose their jobs (which is of course terrible), and in 5-10 years things will build up all over again.

But, so long as investors remain scanred. So long as no one puts money into the system, it will stay at the bottom and drag things on over and over again.

Oh well, that's all my ranting for now.