This morning we get a Skype call from Venice, Italy. One of my more sceptical readers wants to know if my latest posts about Congressmen Pepper and Gibbons are completely true...my answer is yes...truth is always much stranger than fiction...
Gasoline lines and gas shortages are back again....the rumors of shortages send panicked motorists to top off tanks and fill containers....sure enough we're out of gas again...the big trucks are stalled on the interstate...next week the grocery stores begin running out of milk, bread and fave beans....Atlanta, Knoxville, Raleigh and Asheville are all out of gas....people are stuck at home...they're even thinking about cancelling the weekend college football game in Albany...
The sub prime mess was bad enough....now the negative amortization mortgages are resetting....this will be much worse....The way these work is that you agree to an interest rate of 7 or 8 % and pay only 2% for the first five years or so, adding the balance to the debt....then after a period of time you get a letter from the bank saying your monthly payments have tripled....this on a California house that probably declined in value 30%....plus you financed with a 2nd mortgage....good grief....so your mortgages are 200% of the home values and you can't afford to pay them....even college football is at risk.
All of our big investment banks have gone down....our biggest insurer, AIG, needed an $85 billion gift from the government to remain afloat even on a temporary basis....too many insurance policies issued on sub prime collateralized debt mortgage obligations...The big commercial banks are dropping like flies....depositors are making "runs on the bank" and placing the proceeds in short-term US Treasury Securities that pay zero percent (or less).
I look at my own house (sold two years ago) and do an internal rate of return calculation.....it went up in value 7% a year for the first 22 years and then 26% a year for the last five because of a bubble induced by artificially low interest rates and lunatic mortgage lending practices....ten trillion in bad paper....
I have seen the future...an economic death spiral for the world....I'm investing in canned goods and peanut butter...heading for Puerto Rico in the morning....I'll buy some dark rum Sunday morning...and hope American Airlines has enough fuel to get me back...Marx was right....unregulated capitalism will always implode....
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