More Dire Economics

I've been watching the whole mortgage and re-finance nonsense for some time. For the past several years friends and family know that I have been saying that the meltdown was coming in that area: People were buying homes, or cashing in equity, with wild abandon. I personally know folks who pay over 50% of their household income towards their mortgage and escrow. And it's an adjustible rate mortgage.

I believe that we are on the precipice of a consumer financial meltdown not seen since 1930. When (not if), the Fed bumps up the prime rate a lot of the ARMS and adjustible equity loans are going to trigger.

...then the mortgage companies and banks start to go under (some already are).
...then credit dries up, credit card rates skyrocket due to late fees and payments.
...then the rental market shoots up as people are forced out of home ownership.
...then lower-income folks have an even harder time of finding affordable housing.
...then private investment in the stock market declines precipitously.
...new car and luxury item sales evaporate.

Boy, I hope I'm wrong. But Warren Buffett apparently agrees with some of what I say:

Buffett: "Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."