CHARLIE: What's it making, Mr. Wonka?

danah sees it, but doesn’t believe it. Harper’s has some indications of just how bad it could be.

VERUCA: Oh, isn't it high! Gosh!

And the CBO? Well, the CBO just don’t know.

WONKA: But I daren't sell it yet. It's still too powerful.

But it’s looking more and more real. And the effects could be wholly unprecedented. That’s the funny thing about bubbles: since they are by definition based on wild speculation, the more devastating a spectacular burst can be, the more likely it is to happen.

MIKE: Come on, let us try some! Please? VERUCA: Oh, let us try some. Don't be mean!

From the WSJ, via The Big Picture:

Only 10% of homeowners polled said they believe that rising real-estate values had affected their spending. 85% of homeowners surveyed said they had experienced real-estate gains in the past three years 70% saw gains of more than 10% in the past three years. 50% had extracted funds through home equity loans. 60% expect home values to rise at least 5% annualy for the next 3 years. 3% expect home values to fall over the next 3 years. 60% said rising energy costs were causing them to reign in spending.

GRANDPA JOE: Let's take a drink, Charlie; nobody's watching.

Assuming those 10% whose spending was affected fall inside the 50% who took loans against their equity, what the hell did the other 40% do with that money? Invest it in the stock market? Buy T-bills in a sudden fit of rational exuberance? Or maybe they’re all using it to withdraw from the labor force…

CHARLIE: You can fly to the moon this way.

So how does the new bankruptcy law play into this? Foreclosures doubled in MA, CA, and NY in 1990-1992. Could it be even worse this time? What about the systemic risks? To what extent are the GSE’s vulnerable to the potential miscalculations of risk in the credit derivatives market? What would a ‘bailout’ of Freddie and Fannie, with trillions of dollars in mortgages between them, even look like?

GRANDPA JOE: I can't stop! I can't stop! CHARLIE: What do we do?

Interesting times ahead…

Related Posts:

• house of cards (April, 2006)
• Toyota Kicking Some Major Ass (February, 2006)
• The Money Man’s Burden (September, 2006)
• “Big Bailouts” by % of GDP (November, 2008)
• Turing’s Cathedral, Awaiting a Soul (October, 2005)

This entry was posted on Thursday, October 6th, 2005 at 10:59 pm and is filed under doomsaying, economics, society. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.