CREDIT CRUNCH IS BAD AND COULD GET REALLY BAD---BUT

John Maulden is the best credit analyst anybody ever knew, and he has a very long and accurate over view of the credit markets. The first two thirds indicate the plane is about to crash and we are out of parachutes. The next third shows exactly what we are going to have to do to solve it, and we can solve it IF we don't let our idiotic prejudices cloud our brains. Things like:

It's socialism,

It's more save the rich and fuck the poor,

Why rescue a bunch of deadbeats who should have known what they were getting into (as you will see there is no way they could have known what they were getting into because the lenders didn't know),

I can't understand this so let the government bail us out...and so on.

His major, and I mean MAJOR, article is HERE. Below are a few teaser paragraphs for you.

Talking to any number of people who have been in the markets for decades, this is the worst in their memory. Ironically, it is the 100-year anniversary of the Panic of 1907, when one banker (J. P. Morgan) stepped in and provided liquidity to the markets. The central banks of the world are providing liquidity; but as we will see, it is not mere liquidity that is needed.

Next teaser:

"Let's say I want to buy a $200,000 home. I can qualify for an option Adjustable Rate Mortgage (ARM) with a starter rate of 2%. I can pay interest only for the first year, and then the rate goes to 5%. So, I have an interest payment of $4,000 a year, or $333 a month. But starting the second month, the interest is actually at 5%, so the real interest amount is almost $10,000, and the amount on my mortgage grows by roughly $6,000 the first year. I now owe $206,000 on the home. If I put down just 5% as a down payment, I now owe more than I paid for the house, if you take out 6% realtor fees when I sell! But as the interest rate resets in the second or third year, it can go up to 8%. I am now paying $16,500 in interest, and my monthly payment for just the interest is $1,375.

Now enter the crook home buyer, people who lied like hell on their loan aps

The loan application and review process for 'no-doc' loans was so lax that such loans are referred to as 'liar loans.' In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.

Let's all feel sorry for these pricks. He also covers the lying by the bond rating services and how much money they made by incorrectly rating the mortgages.

The problem is, quite bluntly, that no one knows what the values of some of the mortgage-backed securities are. And if you don't know, you don't buy. And today, even very well-designed CDOs with no subprime exposure are selling at discounts, if they are selling at all. Senior bank loans are selling at an apparent discount to subordinated debt (which is not selling, so no one knows the value, so the "price" is the last trade).

He then says that the real problem is that since everybody was lying in their teeth, somebody with integrity needs to step in

The Panic of 1907 was solved by the credibility of one man, J. P. Morgan, who stepped in to provide liquidity. The Panic of 2007 is not a problem caused by lack of liquidity. It is a problem caused by lack of credibility. Morgan could (and did) provide liquidity. Buffett can (and should) provide credibility.

There's more and it says a lot about all of us. "Greed Kills, Absolute greed kills absolutely" or something like that. Oh, and it ain't George Bush's fault and it ain't the corrupt Democrats either.