Some people, me included, would argue that the root of our current problems lies with the 'see no bubble' policies of Alan Greenspan as Fed Chairman. Internet bubble, real estate bubble, ARM bubble, it was all good under Easy Al, who couldn't stand to see a party end on his watch, even for the greater good, and even though he was supposed to be 'the law'. Heck, he even pimped some of this stuff himself - Take an ARM at a generation low in interest rates folks - forget the hangover, I've got something for that too!
One glaring example:
USAToday, Feb 24, 2004: Greenspan says ARMs might be better deal.
Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.
He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.
But that's the past, and we live in the present, with a burst debt bubble and consequences like these:
Citigroup to Pare Mortgage Holdings by $45 Billion.
Credit Swaps Thwart Fed's Ease as Debt Costs Surge.
Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged'.
Homeowner Equity Below 50% for First Time Since 1945.
As Dollar Tumbles, Should Fed Stop Cutting Rates?
Foreclosures at record as household wealth falls.
The upside of a crisis is that there will be opportunity. To mix metaphors, we're in a forest fire, the dead wood and the good wood is burning, but ultimately this is the way the forest rebuilds. Wait for the bankruptcies though.
MarketWatch: Scion Capital shuts Asian funds to focus on U.S.
Scion Capital LLC, a $1 billion hedge fund firm run by Michael Burry, is shutting its Asian funds to focus on opportunities that will be created by a U.S. economic slowdown.
"The primary motivation for this move is that I foresee a significant opportunity to invest in dramatically undervalued distressed assets and out-of-favor businesses over the next several years," Burry wrote.
"The sheer magnitude of the troubles facing the leading companies in what is still the world's largest and most significant economy cannot be missed," he explained. "The global credit bubble has burst, and the world has not yet learned the full impact."
Extra credit: Al Greenspan or Al Swearengen?:
"God rest the soul of that poor family .... and pussy's half price, next fifteen minutes!"