Story Comments

Luskin got it exactly right, especially the part about the "cramdowns" leading to higher mortgage rates and damaging the business environment. If we don't respect contract law we will all suffer. Theft-by-government is still theft, and it is the way of bananca republics and African thugocracies, not the USA. If we end up with millions of home foreclosures, then we do. Home prices will fall to a level where people can afford them and the country will be better off.

The problem my friend are CDO's. Loans have been sliced and diced into complex derivatives which are owned by mutiple entities which could never agree on anything less than foreclosure on default.

Cramdown by the courts is the only alternative to millions of foreclosures.

The parallels to the decline in the stock market during the great depression are quite uncanny.
April 1930, July 2008, 9 months after the peak, markets down about 20%. June 1930, October 2008, about one year after the peak, both down about 42%. January 1931, March 2009, down 53% and 57%, respectively. March 1931, mid-April 2009, both down about 43% from the peak after a big rally. About 3 months later June 1931 down 63%, August 2009 - nobody knows, yet. Take a look at the Nikkei 225 after the peak in 1990. At about 20 months into the decline, the Nikkei was down about 42%. Then it rallied, but fell to 61% below peak in August 1992, 31 months after the peak. The Nikkei is now down 77% off the peak, after about 19 years. Three big credit bubbles. Three major stock market declines which were much bigger than anyone expected (after calling market botton after market bottom).