Monday, October 20, 2008

Insane Running the Asylum

Shocking news to some this morning as headlines streamed across; "Default rates are soaring for American auto loans and credit card loans. Lenders are tightening up." Who could have seen that coming?

During 2006 and 2007, Americans took out about $50 Billion every quarter to finance their ridiculous lifestyles. In 2008 as the losses poured in and banks realized they would not be paid that money back, they cut off the American ATM machine.

So instead of realizing they were in serious debt and deciding to cut back spending and start to save money, Americans did the only thing they know how to do; they looked for a new way to borrow money. It was not too hard for them to find because all they had to do was open up their mail every month to find a brand new credit card asking to be used. And use it they did. The ones that didn't need it continued to finance their lifestyles and the ones that were counting on the home ATM machine were now using credit cards to make ends meet every month.

Guess what? They are now starting to default on all that credit card debt, and credit card companies are starting to realize that they won't be paid back. Don't feel too bad for them though. I'm sure the company heads that held the greatest amount of stock sold off months ago. When Visa went public a few months ago, I had written that it would be the crime of the century, as insiders sold stock to the public that would then collapse in value.

In the past few months credit card companies have done exactly what the home builders did in the beginning of 2007. When they realized that people were no longer buying homes they started a tremendous amount of unsold inventory homes. The numbers hit Wall Street that "new home starts were way up to start the year." The insiders then sold off their shares while the people that bought in got slaughtered.

The same thing has happened with the credit card companies the past few months. They have lent out as much as possible and investors saw all the new profit potential with the revenue the companies would bring in from the interest on these loans. Unfortunately, just like the money lent out to homeowners, none of it will materialize because they will not be paid back. Car loans are now facing the same problem.

So now what? How are the Americans going to keep spending? Don't worry, another major headline crossed the wires this morning that the government is in discussions for another stimulus package by the end of the year. The government is going to send people money directly again. The insane are running the asylum.

The leader of the destruction of this country, Ben Bernanke himself, this morning urged Congress that additional "stimulus" was necessary.

http://online.wsj.com/article/SB122446082980748593.html?mod=rss_whats_news_us_business

http://www.ft.com/cms/s/0/4cae6ebc-9c95-11dd-a42e-000077b07658.html?nclick_check=1

http://www.nytimes.com/2008/10/20/business/economy/20cost.html?_r=3&ref=business&oref=slogin&oref=slogin&oref=slogin
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