正文
This isn't about losses, it is about credit and loan availability. Home equity financed the recovery following the tech bubble. It financed the construction of China and about every other thing around the world. If the collateral holds up, excess losses in subprime and as far as that goes, prime won't be that great. The loans aren't the short term trouble. They are the longer term trouble.
What subprime did was allow the blowing of a much bigger bubble than previously possible.The losses in mortgages will relate directly to the instability of the collateral, the homes and their values post bubble. The entire systemis now set up for higher home prices when the true economics of the picture is lower home prices. I lived through one of these in the1980's. I'm not talking about the slow downs on the coasts, but the busts in DFW and other parts of the oil patch. In these cases, building and speculation got way ahead of itself. Some areas, homes dropped 50% or more in price and stayed there for a long time. In the North Dallas area, builders just kept building at lower prices than the higher speculative prices of a year or 2 earlier.
What did all this mortgage money do? Allow people to buy houses? No, that was the end result, but what it did was flood the consumer market with cash. Sell a $250,000 home and get $100,000. Buy a $500,000 home with very little down, maybe $25,000 and blow the other $75,000 or send the kids to school or something. The mess cannot be tallied.
This is what starts a deflation. You might notice that gold and silver are falling in this mess. Cash is drying up to speculate. Financing is drying up to make buying homes easier and easier. Home equity is starting to disappear and the lending on it is also going to disappear. The trillion a year in home equity gains has ceased. The bottom line of the Dow 30 and the SPX will soon be impacted to the negative as the inflationary effect is reversed.
What subprime did was allow the blowing of a much bigger bubble than previously possible.The losses in mortgages will relate directly to the instability of the collateral, the homes and their values post bubble. The entire systemis now set up for higher home prices when the true economics of the picture is lower home prices. I lived through one of these in the1980's. I'm not talking about the slow downs on the coasts, but the busts in DFW and other parts of the oil patch. In these cases, building and speculation got way ahead of itself. Some areas, homes dropped 50% or more in price and stayed there for a long time. In the North Dallas area, builders just kept building at lower prices than the higher speculative prices of a year or 2 earlier.
What did all this mortgage money do? Allow people to buy houses? No, that was the end result, but what it did was flood the consumer market with cash. Sell a $250,000 home and get $100,000. Buy a $500,000 home with very little down, maybe $25,000 and blow the other $75,000 or send the kids to school or something. The mess cannot be tallied.
This is what starts a deflation. You might notice that gold and silver are falling in this mess. Cash is drying up to speculate. Financing is drying up to make buying homes easier and easier. Home equity is starting to disappear and the lending on it is also going to disappear. The trillion a year in home equity gains has ceased. The bottom line of the Dow 30 and the SPX will soon be impacted to the negative as the inflationary effect is reversed.
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