If you’re only dimly understanding all the machinations that led to the subprime mortgage mess and corresponding fears of a credit crunch, you’ll appreciate this New York Times article explaining how an apparently tiny corner of the mortgage market has spread to so many other areas of the financial markets.

If you find any articles in your travels that really nail a hard-to-understand economic concept, definitely send them our way and we’ll share with the group. It’s hard to make smart investments decisions if you only halfway understand the issues, in uncertain times particularly. Knowledge is power!

[image: Carbon filament bulb by rpongsaj on flickr]

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Wish it were that simple! Problem is we had several bubbles working at the same time. Also we were shipping our manufacturing overseas. The Fed is just following the short term bond rate. That will change. How do I know this, it always has changed. As I pointed out before the Bank stocks have lost more than 1.2 trillion in value. So this is not about sub-prime, because that is the maximum loss expected by professionals. We built are economy on credit and financial services, and that is about to change. Does not leave us in a very good position!

You said it, both of you. It's terrible to think of families getting pushed out of their homes, but really it seems like the sub-prime mortgages are really only one piece of the puzzle...albeit an ever-growing one. Just read this morning that the agency Congress is leaning on to help refinance foreclosing mortgages and save people's homes, the Federal Housing Authority (FHA), has financial troubles of its own. Guess what? 35% of their loan portfolio is in "seller-financed down payment loans", which the New York Times describes this way: "Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers and to owners in depressed housing markets, according to Congressional officials." The article then goes on to state that these loans have foreclosure rates two to three times higher than the FHA's usual rates.
    
In other words, we'll be refinancing bad mortgages with funds from a government agency riddled with its own bad mortgages. Doesn't sound good, does it?
    
Here's the whole article in the Times, if you're interested: http://www.nytimes.com/2008/04/09/business/09fha.html?_r=1&ref=business&oref=slogin