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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (45058)	1/10/2009 8:48:54 AM
From: THE ANT	2 Recommendations Read Replies (2) \| Respond to of 217732

Elmat,whenever I see an article that starts by blaming all this on the housing crisis it is not worth reading.It was a credit bubble a one in 70 year phenomena, period!

To: elmatador who wrote (45058)	1/10/2009 8:23:40 PM
From: arun gera	2 Recommendations Respond to of 217732

Maybe Greed, maybe Demographics. Look at this graph of 10 year treasury yields: finance.yahoo.com^TNX&t=my&l=on&z=m&q=l&c= And see this graph for US annual births. en.wikipedia.org The baby boom generation was born between 1946 to 1964. US men start to buy their first houses around the age of 30. Housing related loans are the biggest loans a person takes in the US. So you should see a higher demand for loans around mid 1970s when baby boomers turned 30, resulting in higher interest rates as demand for loans went up and I am assuming credit availability remained somewhat constant. And the graph shows that the interest rates did spike up. Similarly, the housing demand should have fallen in the mid 1990s around 30 years after the baby boom stopped. Lo and behold, the interest rates started dropping around 1994 and bottomed around 2004 (which itself is about 30 years from the lowest point in the annual birth rate chart. Wall Street banks learnt in the 1980s and 1990s not to take the risk of lending to other countries after the Latin American debt problems. Also, they learnt from the savings and loan crises not to keep the risk of mortgages, and grew the mortgage backed securities offerings to pass the risk onto others. However, as the housing loan demand kept decreasing, banks had to make it easier and easier to generate the housing loans on top of which other risk management securities were built. The East Asian surplus dollars also needed investment which they put in Fannie Mae and Freddy Mac, making them less risk wary. This caused the house prices to be bid up by the highest risk taker who wanted the best house whether he could afford it or not. This had to end when the monthly payable became unaffordable as well as the interest rates started rising for 30 year. In 2006 or so, the monthly cost of buying and maintaining a house was about 50 percent higher than renting the same house. So the true value of the house was somewhere in the middle, say 20 percent below 2006 prices to buy the house. That means all the mortgage based securities related to housing stock were overvalued by about 20 percent at least. The total value of mortages was $12 to $14 trillion, So the losses if prices reverted to true values could be as high as 2-3 trillion dollars. That kind of loss would wipe out all almost all equity in US financial firms. And that is without the losses on derivatives. Then started the recognition of sub-prime crises last year to the stage we are. In the absence of gold standard abandoned in 1970s, we are on tethered to the housing standard. Housing is one thing an average person is willing to work for 30 years (what more guarantee does a bank want, a family will work hard to to pay off your loans and give you the profits). The federal govt. is also banking on the same guy to pay them a portion of his earnings in taxes. You can overstretch the average family only so much. -Arun