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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: kris b who wrote (67935)	8/10/2006 12:26:06 PM
From: russwinter	Read Replies (3) \| Respond to of 110194

Great questions, on the first the inevitable problems with this credit have been either delayed or covered up. Financial institutions can hide this because frankly I don't think bank examiners are very active now. The Bush administration doesn't believe in regulation or enforcement, so wildcat finance is in full bloom.. Plus there are credit swaps, etc, that can paper it over. The ball to keep an eye on are delinquencies and foreclosure actions, which are gradually picking up steam. However, even there, because the housing and finance "buy everything" Bubbles are still enormous, that even if equity is shrinking, property and assets can still be overappraised or the impression given that recoveries will be full, so more Ponzi finance is provided to service defacto bad debt and keep overconsumption going. Then on top of it you have FCBs writing blank no questions asked checks to buy these securities and create mystery rallies (such as today apparently). Message 22703541 In otherwords the daisy chain needs to break down. Ponzi’ finance units must increase its outstanding debt in order to meet its financial obligations.” A transition occurs over the course of an expansion as increasingly risky positions are validated by the booming economy that renders the built in margins of error superfluous - encouraging adoption of riskier positions. Eventually, either financing costs rise or income comes in below expectations, leading to defaults on payment commitments. --Hyman Minsky Central banks can be a player, but not with the baby step approach taken in the last few years. They are so far behind the curve, that right now their effect is minor. They also need to tighten up lending standards, but never get around to that either.