It Is All About Blood On The Wall

Global recession?

Uh, yeah. Looks like it.

So the American obsession with easy money, exported wonderfully throughout the world, has, well, seemingly exported the inevitable results too.

Big stock-market sell-offs occurred worldwide today, with some indexes losing nearly 10% of their collective value. The French stock market lost 7 percent, as did India's largest. Japan's Nikkei lost about 5% of its value today. Of course, American markets were closed today in celebration of Dr. Martin Luther King's Birthday (observed). The market bloodletting will resume Tuesday in the United States.

Seems the cause of today's meltdown was the subprime fiasco gripping the US economy. To break it down for those not really following the situation, it seems that mortgage lenders made loans -- big ones -- to people with shaky, sometimes non-existent credit or income. (When I sold real estate, I personally did deals where buyers got "no doc" loans -- basically, they stated an income that they received, with little to no proof, and based on their credit score, they got a loan -- sometimes as much as $250,000 for a home).

Now, lemme ask you, if you had money to give out, would you give it to someone who just told you they had a job that paid "x" amount per year, but had nothing else, other than their word, to prove it? That's not very bright. In fact it defies common sense. Only a greedy, silly jackass would do that, right?

Well, there apparently are many greedy, silly jackasses in the financial world today.

Now, many of those loans have gone into default and left the banks holding the bag. And what a big bag it is.

One large mortgage lender was forced into bankruptcy. The nation's largest was forced to sell itself to Bank of America last week. Not only that, but big investment houses created exotic securities based on these mortgages. Some were so mathematically complex, even their creators couldn't fully explain or understand their function or predict their behaviors. Backed by these loans, which are now pretty much worthless, those securities are, you guessed it, worthless. Even The Bank of China -- one of the largest foreign owners of US government and consumer debt -- is now forecast to record a multibillion-dollar loss on U.S. mortgage investments.

Sounds to me like people were too smart for their own good. So now, the housing market is in the tank, mortgages, even for people with good credit, are almost impossible to come by, and the world seems to be moving to recession. If it didn't threaten regular people's livelihoods, and (very meager) fortunes, the whole thing would be comedic.

Instead, it could be calamitous. In the words of one financial analyst, "it is all about the blood on the wall."