You Walk Away
January 29th, 2008 by 
reality
Hat tip to Mish Shedlock. Not only is the “walk away” meme spreading, it has apparently already spawned a service business that helps the “walkers.” 
Mish takes the view that “walking away” is just a business decision that should carry no moral stigma. I disagree. Not only a promise, but a contract is being broken. It is not illegal, but that doesn’t make it right. Yes, lenders and other businesses do bad things. But two wrongs don’t make a right, and if people treat their promises so casually, then we are in a whole lot more trouble than I thought.
Posted in Fixed Income, Real Estate | 
January 29th, 2008 at 12:14 pm
Brokers steering people who qualify for fixed rate loans to ARM loans. Paperwork with fake top pages that are ripped off to reveal ARM loans. AAA ratings for everyone. Debtors walking away from money pits.
A match made in heaven?
We have an INCREDIBLE amount of fraud to burn through. Now if I can correctly answer the inflation/deflation question I can make some big money.
P.S. Deficit spending to mail out tax rebate checks. Isn’t that direct monetization of the debt? Especially if they keep doing it? Helicopter style?
January 29th, 2008 at 2:53 pm
Check Hussman’s piece linked to in the “Sunday Dinner” post for the analysis on that.
January 29th, 2008 at 7:34 pm
NPR did a poll earlier this week to see how many people were going to spend their rebate checks (~25%). The rest were going to save it or pay down their debt.
So 1/(1-.25) = 1.33 (GDP spending multiplier)
1.33 * 150 billion = 200 billion in new GDP
That is enough to offset a 2.5% decrease in consumer spending but is a drop in the derivative bucket. If that doesn’t save the day then factor in Charles Schumer on the Senate floor today pushing for a second stimulus package.
I think the key part of the Hussman’s article was this quote:
“The simple fact is that $150 billion is far beyond the capacity of the Fed to monetize without provoking a currency crisis.”
The question isn’t “can” the Fed monetize the bad debt but “will” the Fed monetize the bad debt. It’s been done before (Argentina, Weimar, Zimbabwe, etc.) and our administration has been plumbing the depths of poor decision making for quite a while…
January 30th, 2008 at 12:23 am
just a quick reminder: life is about surviving (many times at the cost of other human being - unfortunatelly).
This time is no different…… only financial markets are involved.
I agree with Mish. People will (and should) do whatever they can to save themselves - it will create chaos in markets, that’s for sure. And we all will pay the price for misguided govt policies!
Filip