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

To: Real Man who wrote (76531)	12/24/2006 9:45:15 AM
From: russwinter	Read Replies (2) \| Respond to of 110194

You've described the set-up well, or at least how many perceive it. But it just sounds like a free ride, and reality is anything but. So I differ in how I view the conditions of the Ponzi units (PU) themselves. PU's are like heroin addicts, they need more and more additional debt to sustain them. A PU system fails when real economics brings them down (). The negative cash flows and no room for error does them in. And right now, there are lots and lots of candidates. Take the example of speculator held rental housing units for instance. If a Risklove is using a neg am mortgage where the real interest rate is 8%, and has a renter paying a 4% cap rate, then he is steadily bleeding to death. Add on the fact that his Ponzi unit lost 5% (or more in many places) of it's value in the last year, and this Risklove has a serious problem, AND SO DOES HIS LENDER. It really doesn't matter if his lender is a FCB or a Pig Men, they are holding a distressed loan on a distressed property. They can pretend ()these are not distressed, but reality is reality. Ponzi unit holders can run, but they can't hide. Even setting aside ethical considerations, the Fed does not have the tools to save this situation. And FCB's are already big time bagholders of Ponzi securities. Hyper-inflating now is likely to flow (*)into something directly harmful to the economy such as energy. Then speculators such as the rental owner described above, just receive higher costs, which makes his cash flow math even worse. () 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 () a pretender Michael Youngblood, "research" director of Friedman, Ramsey, and Billings is described in this blog post; wallstreetexaminer.com (*) The truth is that liquidity, the only significant weapon remaining in the central bank's arsenal as decision making moves to the markets, will not necessarily go where you want it to go when you need it to go there." --Martin Meyer writes in The Fed