This is a reprint from October 30, 2006. Things are pretty much following the suggested script. It seems even more real after two years have passed.
Normally when you make a bad investment, you walk away from it and take the loss. But that can change, if the size of the investment is too big to walk away from. Your common sense thinking gets turned upside down.
When disaster strikes, there is the urgency to raise cash fast. In this sort of decision-making, you end up saving the crap for last. It doesn’t really sound rational, but there is the hope that the “dogs” will come back. So it appears that we have a lot of homeowners in this dilemma right now. Their situation is just now becoming obvious.
If we examine the group that holds the mortgages, it gets a little less visible. Large institutions can hide their problems just by being so big. Second, if the amounts of cash managed are large, the financial institution can use the cash to stall for time. It’s very easy to pretend that nothing is wrong. You will get caught, but probably just not this year.
Another thing that is quite invisible right now is embezzlement. Take an embezzler, he purloins the funds and the person bezzled, is none the wiser. In fact both can be at the same resort spending money, and having fun. The only difference is, the embezzler knows he's spending your money, while at the same time you think your money is safely tucked away. This can go on until the eventful day when cash demanded from the enterprise exceeds what they can cover. It's only at this point that the person embezzled will feel the pain. Knowledge will not only set you free, it can send your blood pressure into the stratosphere.
Notice that the perceive problem is the over extended homeowner. If you carry things forward, the rest of the systemic problems will become apparent. At that point, it will be too late. The assets will be non-existent.
We have yet to see a retirement fund under the stress that will be produced by the baby boomer’s retirement. There has been no real call for funds yet. Common sense suggests that the assumed assets are safely tucked away.
Q.E.D. The Tooth Fairy lives!!!