Rising Interest Rates Start Popping Bubbles

By John Rubino – Re-Blogged From Dollar Collapse

Towards the end of economic expansions, interest rates usually start to rise as strong loan demand bumps up against central bank tightening.

At first the effect on the broader economy is minimal, so consumers, companies and governments don’t let a slight uptick in financing costs interfere with their borrowing and spending. But eventually rising rates begin to bite and borrowers get skittish, throwing the leverage machine into reverse and producing an equities bear market and Main Street recession.

We are there. After a year of gradual increases, interest rates are finally high enough to start popping bubbles. Consider housing and autos:

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Even Mortgage Lenders Are Repeating Their 2006 Mistakes

By John Rubino – Re-Blogged From Dollar Collapse

You’d think the previous decade’s housing bust would still be fresh in the minds of mortgage lenders, if no one else. But apparently not.

One of the drivers of that bubble was the emergence of private label mortgage “originators” who, as the name implies, simply created mortgages and then sold them off to securitizes, who bundled them into the toxic bonds that nearly brought down the global financial system.

The originators weren’t banks in the commonly understood sense. That is, they didn’t build long-term relationships with customers and so didn’t need to care whether a borrower could actually pay back a loan. With zero skin in the game, they were willing to write mortgages for anyone with a paycheck and a heartbeat. And frequently the paycheck was optional.

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Housing Market Collapse 2.0 Accelerates Rapidly!

By David Haggith – Re-Blogged From Great Recession Blog

Just ten days ago, your Lone Ranger here laid out why one should see the barely beginning downturn of the housing market in Seattle as the bellwether for a national housing market bust. Naturally a snowflake or two of criticism landed on my nose to say I knew nothing about real estate. That being the case, look at how the world has changed in so little time to catch up with me. An idea that you may have read here first is now mainstream news in every housing fact being reported across the nation and around the world.

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4.5 Million US Homeowners Still Under Water on Mortgages

By Bloomberg – Re-Blogged From Newsmax

A staggering number of American homeowners remain under water on their mortgages a decade after the housing bubble burst.

Almost 4.5 million households — or 9.1 percent — owed more than their homes are worth in the fourth quarter of 2017, according to data firm Zillow, with an estimated 713,000 owing at least twice as much as their property’s value.

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The Crisis Next Time

By Nicole Gelinas – Re-Blogged From City Journal

Ten years after a financial meltdown, America hasn’t grappled with the root problems.

Interest rates on the United States’ ten-year Treasury bond recently hit 3 percent, which should be regarded as historically low. Instead, a decade after the financial crisis began, it’s remarkable for being that high, and economic and financial experts can’t agree on whether this new rate portends a brewing economic miracle or a looming economic crisis. What it really reflects is a conundrum: the economy is doing well, but in large part because Americans have borrowed too much, too fast, and at too-low rates—and a real risk exists that normal interest rates will kill this debt-fueled boom. In the decade after the 2008 debt-based meltdown, the U.S. still hasn’t kicked its addiction to borrowing.

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