I was going to go buy a couple of pellet guns today so I could begin to teach the boys marksmanship, defintely a skill for the future. Anyway I though I would stop by Wal-Wart to get a couple. It was on the way home from cub scout camp with Nash. But I said screw it I will go to the hardware store by the old Safeway because they sell the guns and I will spend the extra money to keep it local.

The once booming strip mall here..........once the only game in town has died since Safeway built a new center to counter King Soopers opening there shopping plaza. They had no guns since they were having a going out of business sale. They had been there forever serving the small community here now they are done. I felt bad. I really am hoping now for the all time greatest credit bust..... hopefully sinking all of corporate Amerika with it. It is really the only chance we have (IMNSHO) to right all this BS gone awry. Personally I wouldn't care because I have the skills to build what I need from weapons to bicycle wheels to homes and instruments, I could probably figure out making moonshine etc... So really I stand only to benefit from a situation like that.

Don't get me wrong, I truly see value in all people and wish very few ill. But I am getting so fed up watching the "Effexored (new anti-dep) masses continually playing this retarded game. If they weren't so doped the f**k up maybe they would have some testicular fortitude and think for themselves. And now here in Conifer we have somewhere around 500K sq. ft. of retail / office space....at least 40% vacant with majority of occupied space going to retail/ real estate / fast food. A rude awakening is coming. And what are the masses going to consume to cope with that when they are so effexored out now!

Have you been following the BSC hedge fund story? Kinda' blows my mind. Still looks like Enron on a massive scale to me. Seems nobody wants to put deriviative losses on the books. They prefer to believe in the existential 'wishful thinking' outcome. Somehow, I have a feeling that this fairy tale will not have a happy ending. If it were just me thinking that way, I may feel a little confused by the situation. But if I recall, no less than Mr. Buffett made a call on (credit?) deriviatives quite a while back. Why is he so smart?

If you have not read it, find the Bill Gross recent comments on CDO's. It'll crack you up.

Will the bag holders ever get wise? From what I read they had people standing in line to buy this stuff. I'll never forget the time I was wondering around Inchon, South Korea and happened upon a snake oil sales tent with a genuine whirling dervish to wow the crowd. It was quite a show. That's the image I hold in my mind when I think real estate. Even though I couldn't understand a breathless word being said I could imagine the pitch promised to make all your dreams come true. Just buy some a this here snake oil before the supply dries up! The crowd was mesmerized. Was it Benjamin Franklin who said that beer was proof that G-d loves us and wants us to live a happy life? Me and Homer Simpson will take the beer. ( And G-d's love.) Someone else can hold the bag, please, I insist, my hands are full.

Is a top in sight? Retail is fading fast. Homebuilders saw short covering today. They might be in for a reaction rally. They are way down. What's with gold/silver? Can you spell liquidity? I'm keeping an eye on the yen. The yen is looking like it really did find support. With all the buzz about hedge funds, etc., I'm thinking the yen is the big story. If it found support here, then the Great YCT Unwind begins at a market near you. At the worst possible time, just as Murphy's Law dictates. Makes me glad I'm not running the Fed. And can you imagine the political fallout if markets are in freefall next year around election time. Ouch! This could get really interesting.

Not 3 weeks ago I had a tire go flat on one of my work trailers. This tire was less than 4 years old and had less than 15,000 miles on it. It didn't just go flat-- IT EXPLODED. There was nothing left but the steel belts running from inside to inside. Thank God I was running a tandem trailer and not a single axle. Guess where it was made?

Guess who went down to the tire store and replaced all 4 with something made in America (that I really could afford). But obviously all were tainted and untrustworthy.

There are always additional costs to just low price.

I read both of the links your readers provided and do agree to some extent. I have tried to be informed on the issue of global warming for a while now. The earth has many cycles, not just climate.

I think a lot of people are missing something. In this web of life we cannot (these are my beliefs - and people who are tuned in probably would agree) make changes to the planet without consequences. It is that thing we were taught (Newtons third law) for every action there is an equal and opposite reaction. I think this holds true for everything including emotions, energy and the planet.

How can we pollute on the order of Billions of tons of toxins a year with no effect? How can we destroy parts of the web of life without effecting the whole. We are managing to destroy the planktons of our ecosystems but want I do not think a lot of people realize is that they are only the first to go. There is no free ride. Never has been, never will be.

The sooner we learn sustainable living is the only way will we be able to move forward.

This blog is a daily read. Keep up the good work.

I just finished reading with great interest the June 28th entry on your blog. Regarding the part of the entry where attorney Fred Roper says:

"My knowledge regarding products liability cases is pretty limited. The rule is: if a merchant sells a product to a user or consumer that is unreasonably dangerous and causes harm then that merchant is liable for the injuries to that user or consumer."

A question I've had for years is how the sale of tobacco is still permitted in this country? Study after study has convincingly proven that tobacco is extremely harmful to humans, but it nonetheless it continues to be sold in large quantities in this country, and in other countries. The only thing I can think of is that the sale of tobacco remains legal in this day and age because of the tax revenue and profits it generates. What other reason could there possibly be? Once again, money seems to be more important than people and their health. Sad commentary on today's society if you ask me!

Arguing about the validity of global warming is like getting into a discussion about whether god exists or not. Both topics provoke high emotions on each side and neither can be proven.

Perhaps global warming is not occuring and we are just having natural fluctuations in weather. I agree that our current data does not allow for a true diagnoses of global warming. However, it doesn't take a bunch of scientists or statistics to prove that humans have a negative effect on earth and its inhabitants. I only have to look around me to see the changes that have taken place in the mere 35 years I have been on earth. When I go back to Chicago to visit I can see a haze that covers the city which I don't recall seeing as a child (or maybe I didn't pay attention). The number of ozone days seems to increase every year.

Here in Florida I see huge tracts of former forest and farmland converted into subdivisions and stripmalls. As a child I remember being able to see my feet in three feet of water in the Gulf of Mexico, not anymore. When I see comparison pictures of rainforests in South America twenty years ago and today, I can see a major difference. Just the fact that we have "endangered" animals is proof enough that we have a negative impact on earth. OK, so maybe our climate is not effected by our presense yet, but there is a whole lot out there that is negatively affected and it needs to change. The fact is we are not good stewards of earth and its resources and it doesn't take science to prove it.

I highly recommend reading Collapse: How Societies Choose to Fail or Succeed by Jared Diamond. It examines the collapse of several ancient and not so ancient cultures and how it compares to today's society. Almost all of the societies brought about their own demise through lack of proper resource management. I have no doubt that one day our great-great-great grand children will look back upon this time and say "how could they not have know what was happening and not do something about it." We say it about our ancestors and they will say it about us.

Years ago, before I had much interest in politics or business, I thought the economy seemed “artificially supported” somehow. I struggled to understand allegedly sound business principles behind building more mini malls when existing new mini malls already had lost their tenants and were desperate to fill their store fronts. I didn’t see how the behavior I saw from corporations was “personally responsible for its actions,” when any regular person doing the same thing would be deemed an idiot, or criminal. Sure enough, years later I learned that I was on the right track; the economy IS artificially supported and there IS lying involved.

I think you wrote a few years ago about shoddy new home construction, though I’ve forgotten the name of the article. Shoddy construction was how I got interested in this whole mess, enough to try and figure out what was behind it. It didn’t make sense that builders would go so far out of their way to take shortcuts that made houses disposable. But I found out quickly that if the legal recourse of home buyers is restricted—and it is—that those shortcuts add up to profits. I also found out that if a builder admits fault on one house he opens the door to other claims, so they deny everything, even when caught red-handed.

These tactics work most of the time, so overall, it is profitable, but eventually such houses of cards do come down, and the bigger they’ve been allowed to become, the harder they fall.

A crash of housing or the economy in general will be painful, and I believe this is the argument these industries are going to use, to angle for a federal bail out. They’ll claim it’s for the good of the country, but what it’s really for is the good of the industries’ bottom line, the industries who lied to us all along. I’d rather deal with a crash now than a bigger crash later, because a bail out will only make the inevitable that much worse. Consumers can pretty much be sure that any bail out will only go to help industries, not regular people.

I can imagine the spin masters working now to package a federal bail out to look like consumer protection.

Cindy Schnackel
National Secretary, Homeowners Against Deficient Dwellings

I think I disagree on the thinking behind the Bear Stearns debacle, although probably not about the end result.

Easy money and low interest rates give you low investment returns as well. Especially when interest rates have fallen, investors will be desperate for more return. Since risk is seen to be low, the investment community will come up with lots of ways to spend your money. So stock and asset bubbles form.

Many investors knew the housing mania was going to end in tears (they usually do), but the timing is never known in advance. There's also the possibility the thing will go up for much longer than you expect. The problem this time around was the invention of the CDO. This allowed banks and other mortgage originators to make loans without worrying about the long-term prospects of the borrower. They just repackaged the loans as CDOs and resold them to the broader market. By arranging them in tranches, they satisfied both institutional investors who wanted high quality and more risk-tolerant investors who would take the subprime, "equity" tranches.

The Feds (including Greenspan) thought this was wonderful, since it made a much larger pool of investment money available to borrowers, and spread the risk of default much wider. A single bank making mortgage loans in a single community is very exposed to local downturns. Rapid interest rate changes were also a worry (remember the 80's S&L crisis.) A world-wide community of investors supplying funds for loans all over the country is much less exposed to downturns. A single CDO could even span the whole country, greatly reducing the impact of local events. Even in the case where the whole country went into downturn, the top tranches (best credit rating) would be nearly unaffected, and the losses from the bottom tranches (subprime) would be spread over the entire world, rather than bringing down a large lender. This is good because a large lender might be the counterparty to many other transactions. Killing one of them could kill other parties, in a domino effect. Giving all investors a minor haircut because of subprime losses would not have repercussions.

Unfortunately, the CDO, by unlinking the source of the money (the investors) from evaluation of risk (the mortgage originator) was an invitation to fraud. No-doc loans, ARMS that reset after 3 years, 100% loans, cash-back loans, bogus appraisals, house flippers, etc. all grew like weeds in an environment where the lender wasn't (ultimately) playing with his own money. As long as the price of housing was going up 10-20% a year, there was nothing to worry about. The huge profits obtained by selling even 3 year old loans would cover any possible losses from poor credit quality. This attitude was widespread - "don't worry if you can't afford the loan after reset, you can refinance in 3 years with the 30% equity you'll have by then!"

I'm not sure of the role of the rating agencies. It's possible that all they were doing was evaluating the structure of the CDOs, saying in effect, if the top tranch is really all low LTV, high credit rating customers, then this CDO tranch has AA rating. I don't think they were ever inspecting the actual mortgages underlying the CDOs. It hardly mattered given the mania for housing, and the amount of easy money looking for high returns. None of the CDOs had a long history, but none of them were going bust either.

Then the housing bubble ends and the tide turns. As with the real estate market itself, the transactions lock up. No seller wants to drop his price when they've been going up, and no buyer wants to pay peak prices when he's sure they are going down. Similarly, no investor wants to trade a CDO and find out what it's really worth, and no buyer wants the things because he suspects they are toxic. So they don't trade and are not marked to market. Meanwhile, since everyone suspects they are sitting on a load of trash, they pressure everyone involved to avoid making the truth obvious.

On the one hand, this is the lying you describe. On the other hand, it's also temporary cover. You know that behind the scenes, people are not just holding their breath and waiting for it all to collapse. They are frantically trying to unwind positions or buy hedges for this junk they know is going to be worthless. Someone is undoubtedly selling this stuff under the table somewhere, just to get rid of it before it's obvious that it's trash. The thing will collapse when some fund gets in big enough trouble that they are forced to sell everything, including the CDOs.

This is what happened to Bear Stearns, and the natural response of everyone involved is to bail them out, buy up the assets privately, or find some way to keep CDO prices from being made public. Because when that happens, the game is up. Yes, it's dishonest, and yes, the small investor (or idiot pension fund manager) will be the last to know. On the other hand, the top guys (including the Fed) always think that if only they can let the air out slowly, they will avoid the wreckage that comes with a sudden collapse. And of course, everyone involved thinks they can save their own hides.

The game will end soon, when yet another fund is in trouble and there's no bailout money left. At that point, it will be a rush to the exits.