What scares you most about the current economy?

[irvinesinglemom_IHB]

NancyBotwin! Is it really you? I just LOVE how you burned your house down during the fires last season. I don't get how you stay so skinny, though, what with all those milkshakes you're always drinking from It's a Grind. I can't wait to see what you're doing this season but I will have to wait until you become available on Netflix.



Signed, your most ardent fan, ISM.

 

[bltserv_IHB]

[quote author="muzie" date=1216445480]I'm worried about the potential damage that can stem from multiple bank runs, or reserve depletion at these banks. I'm planning to move my accounts away from WaMu myself. The last S&L;crisis brought the FDIC reserves to -0.5%. Many think this crisis is of a much greater magnitude, and I wonder how the general population will react if they lose faith in the FDIC itself. It's one thing to move your savings from one bank to another to preserve your capital, but it's entirely different if people start to pull out the money to put it under a mattress. It's also a problem if failed banks cause hiccups in payrolls - you would think most corporate accounts are barely insured by the FDIC; pretty soon we're talking real money being lost in the economy, not just money from house bubble paper profits.

</blockquote>


This is my biggest fear. The FDIC could become insolvent with multiple failures.

And the news today out of WaMu makes this post from a week ago even more chilling.

 

[mediaboyz_IHB]

How about the doubling the nations debt with a $5 trillion bailout for Fannie & Freddie Mac?? This is nuts!



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[HB Bear Too_IHB]

This graph scares me more than anything I've seen in a long time...



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It shows that the interest rate for a "typical" home in OC has gone up from about 5.7% to about 6.5% since May. When I run the numbers, this translates into a roughly 9% higher mortgage payment! My guess is that this change alone will cause 10 to 20% of those that could have qualified for a loan in May to now be unable to qualify.



Put another way, the recent run-up in interest rates has reduced the effective demand for homes in OC by 10 to 20%. Now, if we assume that housing prices are unit-elastic, this change in interest rates/demand ought to cause home prices to drop between 10 and 20% more.



Then there's the compounding effects of the price/demand declines. If prices drop, more people will walk from their homes. If more people walk from their homes, then there will be more inventory on the market and if there's more inventory on the market, prices must drop to meet demand.



Not to mention the fact that, banks seeing a greater increase in foreclosures might use the same inscrutable logic as they've used in the last couple of months and raise their rates in response, which leads to fewer people qualifying and so it goes...



It's called a death-spiral friends and neighbors and the banks are bringing on themselves with the help of the White House...but guess what? You, me and all the rest of the American tax payers are going end up paying this particular bill in the form of bailouts and every other manner of Republican Socialism the Bushies can muster.



How much more of this crap are we going to take?