August 16, 2007
-- by Dave Johnson
The market is tanking again today. What we are experiencing is just a taste of the long-expected debt explosion. Just a little taste.
Today investors are being forced to sell what they have to meet margin calls because they had borrowed so much and the losses are adding up. They have to raise cash. And now everyone understands that everything is dropping, so they want to get out while they can.
But here's the thing - yes, "sub-prime" loans are going bad. But it isn't just the sub-primes that are a problem. Regular people with good credit borrowed too much as well. They bought houses that cost too much, based on low initial "qualifying" rates. Others refinanced so they could buy SUVs. And most of those loans will be resetting in the next couple of years, forcing payments to rise as much as 50-100%. Meanwhile the price they can get for their houses is dropping.
So this isn't the debt bomb going off, this is the fuse being lit.
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Sell, Mortimer, SELL!!
Posted by: Charles at August 16, 2007 10:48 AM
But then they started yelling, BUY!BUY! And the whole thing turned around again. After dropping over 300 points, the market actually ended on the positive side today. What a roller-coaster ride.
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