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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: octavian who wrote (42455)1/29/2009 2:01:43 PM
From: Boca_PETE   of 42834
 
At the risk of applying "negative spin" on the issue, I would point out that increasing business layoffs put downward pressure on real estate prices. Just yesterday, someone put a flyer in my mailbox offering to sell their home at an amount to just payoff the mortgage loan on the house because the person had been recently layed off and could no longer carry the house.

From the above, the common sense implication is that declining home prices put more bank loan collateral underwater which in turn results in more foreclosures and more bank loan writeoffs and thus lower bank profits. Seeing those shrinking bank profits and smelling blood, short sellers drive the bank's stock price lower until the rating agencies lower the bank's credit rating. And so the taxpayer ends up bailing out another bank in fear that the interwined outstanding derivatives and credit default swaps will bring back panic to the markets. The bailout money comes not from tax revenues, but from out of thin air as created by the FED.

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