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Mikey wrote:...But this isn't like 1929 or 1987 - the problem is that nobody can get credit, so the money can't go anywhere; but it's not being lent, so it's still around.

Yep, and as I have no loans, mortgages, or credit cards... come to think of it, I don't even have a bank account...

The whole thing has had little real effect on me, as I use cash exclusively.

Tsukiyumi wrote:

Mikey wrote:...But this isn't like 1929 or 1987 - the problem is that nobody can get credit, so the money can't go anywhere; but it's not being lent, so it's still around.

Yep, and as I have no loans, mortgages, or credit cards... come to think of it, I don't even have a bank account...

The whole thing has had little real effect on me, as I use cash exclusively.

Likewise. If I can't afford it I don't buy it. That said sometimes I do ask my folks for money to buy food >.>

I'm not saying that the current situation is without ensuing hardships... that's patently not the case. What I'm saying is that the situation isn't based on true realized assett losses on a wide scale (except for the holders of the CMO's with dummy A or B ratings) so much as on lack of buying power, and therefore, stagnation.

I think the longest lasting effect of this crisis will be the housing market, people are going to be very careful about it for quite awhile.

It's never been about the consumers being careful - it's been a combination of fast-and-loose lending practices, couple with lending institutions' willingness to sell investments based on those loans and misrepresenting their earning power. If you have an iffy loan, then the rate will be higher than a loan to a consumer with good credit (and more likely to pay well.) Therefore, that iffy loan stands to make more money for the person who invests in it. Combine that with the fact that those loans were being represented to investors as lower risk than they actually were, and here we are.

What we're already seeing is the lending institutions tightening up their practices, and eliminating things that lead to risky loans - a practical end to ridiculous lending practices like loans with no employment verification. I've been out of work, so I sympathize with those in the situation, but ability to pay HAS to be as much a factor in a lending decision as willingness to pay. Selling mortgage funds isn't going to stop; and you are putting the consumer, the lender, and mortgage investor in untenable spots if you advance loans that won't be repaid.

There have always been sub-prime mortgages. However, those used to carry a high enough interest rate that the ones that made good covered the ones that didn't. What happened recently is that those loans became more commonplace, and began to carry a lower and lower margin, to the point that more loans were being issued that were destined to go bad and that the ones that didn't couldn't make up for them.