After a well needed break, the KoolAidMan is back! During the time off, he’s been disconnected from the markets and the media, however upon returning it seems that not much has changed. Housing values haven’t rebounded yet, and the markets are still jittery.
Instead of linking to a top story about home values dropping again, we found a nice piece at Marketwatch reminding us of some old expressions that are very applicable to the realtors, home buyers, sellers, and lenders who sparked this mess that we’re in.
What goes up must come down. One reason people did this is that home prices were rising faster than personal incomes for a number of years, but that could not go on forever, as we know now.
We know now, and we could have known this back when the mania was at its prime. Most people involved chose to ignore reality and decided to speculate instead. We’re going to guess that there’s a handful of people who knew this and were able to cash out while they could, but there are millions of handfuls of people who are left holding the bag right now.
You can’t make a silk purse from a sow’s ear (or kiss a frog and turn it into a prince). These securities were based on loans of questionable quality that, when bundled together, somehow were blessed with AAA ratings by the debt-rating agencies.
There is no such thing as a free lunch. It boggles the mind how many money managers, investors and just about everyone else thought these securities could be rated almost as high as supersafe U.S. Treasurys — without any added risk. No wonder people from all corners of the planet, from sophisticated hedge funds and banks to the proverbial man or woman on the street, put chunks of money into these mortgage-backed issues.
We’ll be listening for any news on investigations into the ratings agencies as this mess unfolds. It’s difficult to predict what will happen because there are so many things going on behind the scenes that average Joe Investor doesn’t know, but we’re not in the game of making predictions here. We’d rather drink our Kool-Aid and believe that everything is OK!
Stay tuned, for later this week we’ll be covering holiday retail sales and consumer spending. We’re sure to see some interesting statistics in the coming days!
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