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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: ChanceIs who wrote (40860)	3/26/2005 2:16:41 PM
From: jim_p	Read Replies (1) of 206209

Excellent post!! "Today sounds very similar to the late '80s real estate boom" You are right and for the exact same reasons that we had in the early 80's. If you can remember back then, the S&L's were given the right to compete with banks and make business loans. The problem was the S&L didn't have the experience with business loans and overnight they started making loans with little or no credit standards. In the short term things were great, lots of money available which dramatically increase the liquidity in the system and everyone was happy. We all know how this story ended. Today we have the exact same problem. S&L are now making loans with little or no credit standards. I get at least 5 pre-approved requests to make me a "home equity loan" each week. Not long ago it was 5 or more offers to take out a Zero interest credit card loan. Wells Fargo gave me a $1MM home equity line of credit when I bought my house that I don't use and I guess that information must be public knowledge somewhere. The new offers assume that if Wells Fargo can make a commitment of $1MM, they can make an offer of 1.2X or 1.5X Wells Fargo???? Today the S&L's don't have to hold the paper. Today they package them up into mortgage backed securities and sell them to hedge funds or Joe public. All they want is the fee income and could care less about the credit risk. FNM's original charter contemplated a max $200-300 billion in total commitments. Somehow today they are over $1.2 Trillion, with a T. In the last 80's the S&L's had poor credit standards for business loans and today we have the same problem all over again with the credit risk transferred to a diversified package loan where it is never analyzed. Too much liquidity and poor credit standards all over again. The Home Equity lending was not around that many years ago, and most of those loans are at floating rates. We have yet to experience the consequences of a declining real estate market once the liquidity bubble pops with the amount of low quality, floating rate home equity loans outstanding. All excess end ugly and this will be no exception. Jim

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