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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Puru Saxena
July 8, 2009
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I want to highlight the Achilles’ heel which is likely to disturb the recovery in America.

Remember, the ongoing crisis was brought about by excessive leverage and rampant speculation in US housing. Encouraged by the misconception that home prices never fall, millions of homeowners in America took out the following types of mortgages:

a. Prime - good credit rating
b. Subprime - sub-par credit rating
c. Alt-A – no income proof or asset proof
d. Option Adjustable Rate Mortgages – minimum repayment with teaser rates

Out of the above mortgage categories, the really dubious ones are Alt-A and Option Adjustable Rate Mortgages. Under Alt-A mortgage type, potential homeowners simply walked into a bank with no asset or income proof and walked out with a hefty mortgage.

Worst still, under the Option Adjustable Rate Mortgage, instead of the bank, it was the homeowner who decided how much he/she wished to repay each month! In some instances, borrowers decided to repay only the interest and in other cases, borrowers didn’t even repay the entire interest and the unpaid interest was added to the outstanding loan. To make matters worse, these ‘convenient’ mortgages came with extremely low teaser rates which were subject to resets at higher rates.

Make no mistake; it was the foreclosure avalanche triggered by the subprime mortgage resets which caused the credit crisis. Figure 2 shows that although the bulk of the subprime resets are now behind us, billions of dollars worth of Alt-A and Option Adjustable Rate Mortgages are coming up for resets between now and 2011. So, it is probable that the second wave of foreclosures will cause even more problems in the banking sector. Accordingly, I sincerely suggest that you stay away from bank stocks.

Figure 2: Achilles’ heel of the US economy

Source: Credit Suisse

Look; up until now, apart from using taxpayers’ money to save insolvent banks, Mr. Obama’s administration has not done much in the way of helping distressed homeowners. Unless the US establishment urgently restructures this mountain of debt, we are likely to see further problems in the US economy. It is crucial that debt restructuring becomes top priority for the US establishment, otherwise the ‘green shoots’ may turn into toxic weeds.