How will the holders of adjustable rate mortgages fare when "the
man," Mr G, rises rates this year?
Well, that is THE BIG QUESTION isn't it?
The weekend media were bemoaning THE END OF THE ERA OF LOW RATES, and
in a most gloomy manner. But will it really be that bad?
POSSIBLY.... CONSIDER:
When Mr G decided that the stock market, the 401ks, and CEO options plans that were "under water," post-bubble, needed some serious "saving;"
HE MADE A FATEFULLY WRONG DECISION;
NAMELY TO GO TO AN ULTRA-LOW ONE PERCENT FED FUNDS.
This has spawned the various and sundry CARRY TRADES that now
burden the economy with a useless and probably destructive
speculation. BUT MR G LOVES SPECULATION AS WE ALL KNOW.
Yet, very likely NO TRULY WORTHY BUSINESS PROJECTS were funded at 1%
that wouldn't have been funded at a more "normal" 3%!
Did 1% rates really save any WORTHY BUSINESS PROJECTS? Doubtful.
TO BE SURE, ONE PERCENT RATES DID GOOSE THOSE OLD BUBBLE JUICES;
AND ENCOURAGE A NEEDLESS AND POTENTIALLY DESTRUCTIVE SPECULATION!
BUT I HAVE ALWAYS SUSPECTED THAT GREENPSPAN'S "ONE PERCENT SOLUTION" WAS REALLY MORE ABOUT "SAVING WALL STREET," THAN "SAVING MAIN STREET."
Agreed?
SO, HERE'S THE PROBLEM.
WHEN WALL STREET MOVES, THE GLOBAL TECTONIC PLATES SHIFT.
BUT ARE WE REALLY READY FOR THE COMING ECONOMIC EARTHQUAKE?
This notion that you can go from 1% to "normal," and "nothing is going to happen" is a little naive, NUTS EVEN, don't ya think?
JUST THE INTEREST RATE EFFECT ON THE REAL ESTATE MARKET ALONE COULD BE POTENTIALLY CATASTROPHIC.....
AND WE'RE JUST TALKIN ABOUT THE EASY STUFF..........SO FAR.
Stay tuned.......because this is going to be more interesting than Saddam's Trial!
