The Republicans are trying to push this financial quagmire into the Next Administration just

as they are trying to push the Iraq War into the Next Administration ...

Robert Kuttner has a great piece in The American Prospect that closely parallels this piece ...

http://www.prospect.org/

The IMF is treading very lightly in public to assuage the markets. In private they know that

these bubbles in the financial sector can and probably will bring on a financial meltdown.

Food inflation throughout the world is rising dramatically. Most of China's inflation , as well

the rest of the world is in food . Italy recently hhad a one day pasta strike . Singapore has

the highest inflation in 12 years due to food ...

Of course our inflation is very low , because food and fuel are taken out of the equation that

measures core inflation ...

When one looks at our GDP and adjusts it for inflation we have been in recession for many

months now .

If the Fed lowers rates without strong structural changes to the regulatory system the

bubble will only get bigger ...

Bernanke has a choice : Do I do a Greenspan Put ?, or , Do I do a Volcker Cleanup ?

.

The financial wizardry which converts debt to investment paper has reached beyond what is a comfortable limit for individual borrowers, as opposed to governments and corporations, who must routinely deal with the fickleness of the bond market, but who says that just because you signed an agreement to honor a debt, that the paper shouldn't be routinely bought and sold, and occasionally marked to market. In the old days the bank would sit on your mortgage, for 30 years, while interest rates and inflation made your loan look more like a gift, and unless the bank was in trouble they would never call you in to renegotiate the terms. Those days are gone forever.

As fluid as the credit market was on the way up, it will be equally flexible on the way down. Think you have a lock on that Refi at 6%, when rates climb to 8 or 10%. Forget it. Mortgage holders don't understand, they have sold bonds against their net worth, just like rock stars, and celebrities sell bonds on their future earnings.

If the housing market drops the hedge funds who own the mortgage paper are going to liquidate, in order to acquire your equity. Additionally you have to wonder if they won't call in your mortgage when it becomes evident that their return on investment is underperforming inflation.

Borrowers may think all they have to worry about is staying current, they need to grow their assets faster than inflation, or what happens to them is what happens to any investment which underperforms.

The accusations that Bernanke was way over the top on the recent series of rates cuts, fails to take this is into account, the system is highly vulnerable, the value of subprime debt has to mature along a very narrow set of parameters; assets fall, investors liquidate, inflation starts up, investors liquidate. Mr. Nice Guy Banker guy is gone, America's housing market is controlled by highly speculative hedge funds, where the buyers and the sellers of the debt are often one in the same. Did anyone ever imagine that it was possible to lend yourself money, by selling your mortgage to your own retirement fund? Will it be possible to foreclose on yourself? We are about to find out. The only thing keeping this charade going is the stock market, which is the glue which holds these two opposing bits of logic together.

I just finished reading an article in The American Prospect by Rober Kuttner called 'Bubble Economy'. One of the best summaries I've read thus far about our current situation.

http://www.prospect.org/cs/articles?article=the_bubble_economy

Sadly, I think our problem runs far deeper than just "the economy" and is indicative of our cultures problem with the form of valuation of "personal worth". Right now, as always, it's done with stuff (money, fancy objects to show-off, power over others), and everything else that's been pointed out to us by Thornstein Veblen.

Capitalism is nothing but a cross between a ponze scheme and a poker game. And no matter what happens: few win, most lose.

Previous letter writer liked the same article. I posted my remark before reading other peoples letters.

Trusting the loan sharks responsible for so much of the world's misery is a bad idea. If you're anywhere near DC next month, why not join the protests?

but if you have closed on a mortgage and it is a fixed rate at 6% it cannot be taken away or forced to renegotiate unless you start missing payment. If a bond holder needs to liquidate, they have to sell the bonds at a loss.

Why, that, that (spitting and popping here)... THAT sounds like communism!!