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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (5145)	8/25/2002 7:30:38 AM
From: reaper	Read Replies (4) \| Respond to of 89467

<<RE is in self-fulfilling bubble mode. What do you think will be the catalyst to pop it? >> I THINK the catalyst to pop it will be the withdrawl of credit from the marginal consumer borrower. The EARLY signs are starting to appear -- NextCard going under (at a cost to the FDIC of $300mm-ish), Metris having difficulties, the Feds getting after Capital One for their leverage ratios, the accounting police getting after Household International. So we are seeing the first CRACKS in the facade. not a full blown breach mind you, just cracks. remember, removal of credit from the marginal borrower is what caused the corporate capex meltdown. at first it was just Pets.com that couldn't get incremental funding, but then it eventually spread to the bigger dot.coms, and then to the suppliers to those dot.coms (like Exodus or Sun), then to telecom, then to telecom suppliers, then to suppliers to the suppliers of telecom and dot.coms (like say Siebel), then to companies in real businesses that supplied all of these pretend businesses (like say Paychex and ADP). at every step of the way people insisted that we could build a firewall around whatever sector it was that was blowing up; i.e. it wouldn't 'infect' the rest of the economy. these people did not understand the roll of CREDIT in the whole corporate capex boom, and how everything was inter-related, any more than they understand the current consumer credit dynamics. is NextCard the consumer credit version of Pets.com? i don't know, but as i said, the cracks are starting to appear. Al has his thumb in the dike right now; we'll see if it holds. Cheers