[Roccland]

Do you think the 3-5 year ARMs were the fuse lit by our government to bring upon a Global Depression?

The elites have known about PO for decades and have known that PO would bring about a global economic depression ....this way it is on "their" terms.

Keep in mind 3-5 years ago...PO was appearing on the radar.

[EndOfGrowth]

The mortgage meltdown was not designed by the gvmnt. The bubble was.

[dhfenton]

ARMs have been around for a very long time. They are nothing new. As long as there have been banks, there have been crooks looking to make a fortune at the expense of the poor slob on the street looking for easy credit. The majority of reputable banks are not invovled in sub-prime lending; which is the real problem right now. As with the S&L crisis of the last Bush administration, some fringe lenders go belly up, the fed takes action to correct the short-term cash crunch, and the world moves on.

What it boils down to is that you have folks who really can't afford a home ( or often the extravagant home they covet), and they take stupid risks borrowing without a fixed rate. I don't know if these folks think the interest rates are going to stay low for 30 years, or what; but its a stupid, stupid practice. Government can do a lot of things; but the is no greater force in the universe than when the greedy and the stupid do business together.

I've said it before, and I'll say it again: The stock market is not the real world. Turn off your TV, and move on.

[mefistofeles]

I don't think 3-5 year ARM's per say were the trigger there was simply too much credit available in the system.

When you have people working at McDonald's eligible to close $500,000-$650,000 loans there obviously serious issues with liquitity.

However more importantly I think the credit agencies have played a significant role in all this.

If they did their job and simply properly rated the Mortgage Backed Securities and Collatoral Debt Securities they had rated it wouldn't be a problem.

The problem with ratings agencies is that they are paid by the very same people selling these securities and not the final buyer. Therefore there is an inherit conflict of interest between the ratings agencies and the people who finally buy the garbage that they have rated.

Our current problems stem from the fact that investors don't know what securities are really trust worthy. Which is why the credit markets are drying up. No wants to be stuck with the next big financial product waiting to implode in their face. The markets are doing what the ratings agencies have refused to do: begin to properly price risk.

This asymetry stems from fundamental disjunction between lenders and borrowers of debt. The "lenders: people who buy these securities know almost nothing about the borrowers who are suppose to pay them off. This is what happens when banks and mortgage companies can sell their loans directly to wall street and main street.

This risk transfer creates a system of disincentives for people packaging the loans to exercise prudence and caution. After all the loans are no longer on their books so why should they care?!?!

However for us peakoilers I think energy prices are the lynchpin that everything rides on. If peak oil is near then energy based investments should be alright depending on how close we are to peak oil.

I believe that even if energy prices and stocks collapsed the problem would be a self correcting one. Lower energy investment means less energy investment thus leading to lower supply and higher prices, however that is really a medium to long run phenomenon.

In the short term I think the credit markets could seize completely there is simply too much detris and garbage in the system that has to be purged. This could result in Japan style multi year recession at best or a 1929 style credit system collapse.

In this instance I believe the Fed is truly damned. If they succeed with their liquidity injection the inevitable result will be hyperinflation.

If they fail then we have economic collapse. Either way finding what assets are good and what assets are garbage in this environment will be a financially costly proposal.

The mattress doesn't look like such a bad place to put your money after all.

[kjmclark]

The housing bubble was created as a consequence of the Fed's attempt to deal with the stock market crash. Honestly, I don't think peak oil had anything to do with the inflation of either bubble, though it's clearly playing a role in the popping of the housing bubble.

There's a really interesting take on the 70s stagflation at the National Bureau of Economic Research. Someone looked into the situation and concluded that almost all of it could be explained by loose fed policy in the 60s. I don't completely buy that, but look at what happened this time. Loose monetary policy in the 90s inflated one of the world's biggest stock market bubbles. At the same time, the loose money encouraged people to buy petroleum guzzling light trucks and increased consumption of most goods around the world. The Chinese policy of hoarding dollars to keep their currency aligned to the dollar just made this worse.

So, you *could* argue that except for the producing countries' inability to increase supply, everything we're seeing follows from world-wide monetary expansion getting out of hand. Unfortunately for the Fed, the producing countries aren't increasing supply (probably because they can't), and the housing bubble is popping harder than they would have liked. So, the world's biggest real estate bubble in history is popping at the same time that world oil production is peaking. The bubble had to pop at some point, but I think the trigger is oil production peaking and the corresponding hit to lower-income consumers' wallets.