Bigger Economic meltdown coming in 2012 due to Obama spending

[CyberGuy]

New, bigger bubble -- and a meltdown ahead

Yes, folks, a new bubble cycle is already in motion. You can feel the energy building, the kind that fueled the meltdowns of 1998, 2000 and 2007. We never resolved the problems fueling the dot-com insanity. We made matters worse feeding the subprime credit-derivatives disaster with cheap money, Reaganomics ideology and two costly wars. Lessons were never learned, and nothing was resolved. Today matters continue deteriorating.

Behind the hoopla, the Wall Street conspiracy has dumped $23.7 trillion in new bailout debt on taxpayers. The bill will come due. But for now, we're getting their wish: A new bubble is accelerating, thanks to America's "too-greedy-to-fail" Wall Street banks.

Folks, you can bet on it, sure as Regis is hosting "Who Wants to be a Millionaire?" The bull, a bubble and another meltdown are virtually certain and accelerating faster than earlier cycles, coming by 2012. How to profit? Ride it up for a couple years, then pray you'll have enough brain left to bail out in time before the crash (most don't) because at that point the euphoria is blinding, like a cocaine addiction.

Want more proof of inevitability? Here are some visionaries who aren't working for Wall Street's hype machine: Michael Lewis, a former Wall Street trader and the author of "Panic: The Story of Modern Financial Insanity," recently told Newsweek: "There's a false sense that it's over, that the crisis is passed." The bailouts have merely postponed the inevitable. "We are in for another day of reckoning down the road."

Could there be another housing bubble?

The next one will be bigger, "badder," a real demolition derby. Several months ago, in a Vanity Fair article, "Wall Street Lays Another Egg," Harvard financial historian Niall Ferguson sounded more like a shrink: "Markets are mirrors of the human psyche." Like individuals "they can become depressed . . . even suffer complete breakdowns."

The five stages of a bubble popping

In the 400-year history of stock markets "there has been a long succession of financial bubbles," Ferguson says. "Time and again, asset prices have soared to unsustainable heights only to crash downward again." It's an all-too-familiar cycle, in fact, so familiar is this pattern -- as described by the economic historian Charles Kindleberger -- that it is possible to distill it into five stages:

[CyberGuy]

Displacement: "Some change in economic circumstances creates new and profitable opportunities." Last year's historic bailout, election, new ideology.

Euphoria or overtrading: "A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices." Goldman is proof.

Mania and bubble: Prospects of "easy capital gains attract first-time investors and swindlers eager to mulct them of their money." More bubbles: 2010-2011.

Distress: "Insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits." Wall Street replays 2007-2008.

Revulsion or discredit: "Asset prices fall, the outsiders stampede for the exits, causing the bubble to burst." Yes, 2008's brutal meltdown repeats in 2012.

http://articles.moneycentral.msn.com/Investing/Extra/New-bull-new-bubble-new-meltdown.aspx

[CyberGuy]

It is now reported that a new banking meltdown will occur in 2010. Citibank is one that is expected to be in trouble as the tipping comes due to bad Mortgages on its books.

Will Obama bail out Citibank and others once more?

Right now the Feds only insure the first $250,000. Which covers most of us but what about big employors who have millions in the bank to cover monthly payrolls. If the bank folds what happens to that money?

[phkrause]

Obviously someone has to have that money, it didn't just disappear.

pk

[CyberGuy]

One could say the same for the houses. If one bought a house for $450,000 in 2006 now that same house is worth only $180,000. That is in our neighborhood. My house was worth that much in 2006. Now it is worth less than $200,000. Who stole taht money? No one. Economics is supply and demand. When the supply outstrips demand the price falls. That is what happened to the houseing market.

Did that money disappear. No it is just worth less. Same principle for the mortgages the people defaulted on. The Mortage was for hundreds of thousands of dollars more than the house is now worth. So what is the bank to do. They are out hundreds of thousands of dollars per house. People say that the total mortgage mess the banks hold is 71 trillion dollars. More than the government can back for certain. They estimate that about a third of those are in distress or behind in their payments and in danger of forclosure. That is the mess the banks are in and this will come to a head in 2010 for some banks like Citicorp.

[phkrause]

Cyber guy that's unrealist money. That's people throwing out numbers. I bought my house for 150,000. About 3 years ago it was worth 425,000. So why don't I have the difference in my hand, because that is a rediculess (sp) number. Now they say is worth less than I own, how stupid is that? If I give out 1000 dollars cash to 10 different people, and they come back a week later and don't have it, well someone else does. The money doesn't just dissapear, its in someone else's pocket. Real cash is real cash. When some says your house is worth x amount of dollars and you sell it for less than x amount of dollars, you can't say well where is the rest of the money, because it was really never there.

pk

[Dr. Shane]

That is correct. It is only a paper loss until the house is actually sold. For example, let's say I have invested $3,000 in buying single stocks. Let's say those stocks are now worth only about $2,500. That means I have a paper loss of $500. How that is only a real loss if I sell them today. If I hang onto them until their value rises about $3,000 than I don't lose any money.

Banks borrow money when they loan money. If a bank loans out $450,000 to someone to build or buy a home, that same bank is going to borrow that money from the Federal Reserve or someone else in order to loan it out. When the homeowner defaults on his or her mortgage, the bank is still on the hook to pay the money back to whoever they borrowed it from. If the house has depreciated and the bank can't sell it for what is owed on it, the bank starts to feel the pinch. When that happens too often in a given period of time, the bank will fail.

[phkrause]

Now that Shane makes sense and I can agree with.

pk

[CyberGuy]

Many Banks are holding onto forclosed properties in the hopes the market will recover enough so they can sell the properties at a higher price and recover most if not all the loss of the lost mortage. Many people are trying to buy those forclosed properties but the banks are refusing to sell and are holding onto the properties in hopes of higher prices later.

This has the effect of forcing prices of the remaining homes higher as there is less homes on the market for resale because of the banks holding onto those forclosed properties. Supply and demand.

[CyberGuy]

It is the supply and demand market.

When there was an exess of demand and not enough supply the prices goes up. That was what happened from 2000 to 2006. It is like when one house is on sale and several people want it. They keep bidding higher and higher for the house until it is accepted by the seller. When there is not enough buyers the seller keeps putting the price lower and lower until he can find a buyer. The mortgage was tied to the prime interest rate. When the prime was raised the interest rate skyrocketed depressing demand for the houses causing a glut in the housing market. When there was more houses to sell and not enough buyers the prices came down as sellers tried to sell the houses but could not find buyers due to the high interest rates for mortgages.

This is why the housing market has come down in prices and why so many people have upside down mortages. Or in other words they own more on the house than the house is currently worth.

[Dr. Shane]

What drove up demand was cheap money. Interest is the price one pays for money. If the interest rate on a loan is the same as inflation, the money is basically free. Free money means a person only pays back the money they borrowed without any interest above the inflation rate. If a loan is made at 0% interest, the lending institution is actually paying the borrower to borrow the money because the lending institution is losing the time value of the money.

Alan Greenspan lowered the prime interest rate so low that money became almost free. That contributed, in a large part, to the housing boom. Middle class people earning $45K - $90K were able to move afford bigger homes. Upper class people earning $90K - $250K were also able to move into bigger homes in nicer neighborhoods. Cheap money caused the price of homes to skyrocket. But it was an artificial boom. Eventually the market corrected itself. The killer was that many had financed their homes with adjustable rate mortgages and couldn't afford their homes when the interest rate went up.

[bonnie]

What drove up demand was cheap money. Interest is the price one pays for money. If the interest rate on a loan is the same as inflation, the money is basically free. Free money means a person only pays back the money they borrowed without any interest above the inflation rate. If a loan is made at 0% interest, the lending institution is actually paying the borrower to borrow the money because the lending institution is losing the time value of the money.

Alan Greenspan lowered the prime interest rate so low that money became almost free. That contributed, in a large part, to the housing boom. Middle class people earning $45K - $90K were able to move afford bigger homes. Upper class people earning $90K - $250K were also able to move into bigger homes in nicer neighborhoods. Cheap money caused the price of homes to skyrocket. But it was an artificial boom. Eventually the market corrected itself. The killer was that many had financed their homes with adjustable rate mortgages and couldn't afford their homes when the interest rate went up.

A good portion of the problem was "everyone had a right" to be a home owner. If the applicant was standing up right and breathing they qualified.They could not afford,taxes,insurance and upkeep besides the adjustable rate hike. No one has a right to own a home. That is a privilege for those that save and plan and are credit worthy.

To turn down a unqualified applicant was to invite penalties for "discrimination"

[CyberGuy]

If sub prime mortgages had been made illegal we would never have been in this mess. By attaching the interest rate to the prime which was so low as soon as the prime moved up which it always does the interest rate of the loan skyrockets. Suddenly instead of paying $1000 a month for a $400,000 loan you are paying $3500 to $5000 a month. People just could not afford that and defaulted. Homes would not sell and prices on the homes plummeted. As the home values went below the price of the loan others defaulted just because they saw no point in paying for a house that they could not sell later or draw from like a bank account.

What is happening now. Obama is creating another bubble by lowing interest rate to zero percent you have cheap money again. Loans are cheap and the right to own a home is again being used to fuel the economy and to sell houses. The Government is giving $8000 tax credit to first time home buyers to lure first time buyers into buying a house. This expires November 30 2009. Watch home sales plummet after November.

[Dr. Shane]

I don't like seeing the prime rate below 5%. I don't like seeing it about 8% either. Most certainly the sub prime mortgages should be illegal. A 20% cash down-payment should also be required. Adjustable rate mortgages should also be illegal.

[Dr. Shane]

No one has a right to own a home. That is a privilege for those that save and plan and are credit worthy.

I disagree. The right to own private property is not a privilege. It is a basic and fundamental right of a free society. Of course a person needs to be able to afford to buy the property. The government should provide programs to enable low-income people to become home owners. A community of home-owners is a much better community than one of renters. However, we need to do so in such a manner that the people are not getting into a loan they are not going to be able to afford. One way for the government to do this is to allow people with a household income under $50K to set up a Home-IRA which would allow a specified amount of pre-tax money to deposited directly into an IRA to be used toward the purchase of a home. The money would remain tax-free as long as it is used toward the purchase of a home.

[bonnie]

Originally Posted By: bonnie

No one has a right to own a home. That is a privilege for those that save and plan and are credit worthy.

I disagree. The right to own private property is not a privilege. It is a basic and fundamental right of a free society. Of course a person needs to be able to afford to buy the property. The government should provide programs to enable low-income people to become home owners. A community of home-owners is a much better community than one of renters. However, we need to do so in such a manner that the people are not getting into a loan they are not going to be able to afford. One way for the government to do this is to allow people with a household income under $50K to set up a Home-IRA which would allow a specified amount of pre-tax money to deposited directly into an IRA to be used toward the purchase of a home. The money would remain tax-free as long as it is used toward the purchase of a home.

Only as long as I work and pay for it. Then it becomes my right.

Of course a person needs to be able to afford to buy the property.

My right is the pursuit of happiness and prosperity. I have no fundamental right to being a home owner It is not my right to have it just because I think I should.

There are programs out there for low income. The bottom line is if they cannot afford a down payment it is very likely they can not afford what goes with owning a home.