Re: It doesn't really matter as long as the loans continue to be repaid.

The math is simple. The consequences are predictable. The reaction and measures taken are never mentioned or discussed, and are completely unpredictable. You literally can not short obvious stupidity and problems because you can not account for the Federal Reserve stepping in and erasing the problem.

40% of houses with a mortgage in the US have mortgages with rates under 4%. The current Fed lending rate is over 5%. We had a full year of 6%+ inflation topping out at 9%, and the fed raised rates over 5% in a hurry as a response. It doesn't take a rocket scientist to figure out that those 30-year FIXED rate mortgages financed under 4% are no longer financial assets for banks. This doesn't even include commercial loans and real estate, ALSO financed cheap in 2021.

All of this has been repackaged, resold, and has financed derivatives, just as it did in 2008. In 2008 it was people not being able to pay their mortgages after 5 years of fixed (deflated) rates, that caused a financial crisis, with contagion right to the top (derivative markets). Non-payment of mortgages caused assets to become liabilities en masse. Today, it's inflation. When an "investor" buys a mortgage, or MBS, they're buying the long-term profitability of the loan/mortgage, over time, to guarantee profitable returns. When the underlying assumptions on the mortgage are upended, either through non-payment of poorly-structured loans (2008), or the interest paid on the loan will not keep up with inflation (today), the asset becomes a debt. "Toxic debt" as it was once called.

This is happening again, but this time the first dominoes to fall were the lesser-funded and diversified regional banks. The Fed stepped in, as they always do when lenders screw up, and they have floated well over $110 billion in emergency loans, at the rates the mortgages were lent, to recapitalize failing banks. Furthermore, there's at least $600 billion more in liabilities now that have not been addressed by emergency lending. The Fed's emergency lending program is set to expire in March. Had the fed not stepped in, we would have had a banking crisis, a mortgage crisis, and lord knows what else.

Anyway, no one is paying attention to this, as usual. No one paid attention to ####### mortgages from 2003-2008 either. And no one pays attention to what the Fed does when it steps in. And NO ONE KNOWS HOW THE FED RESOLVES THEIR LIABILITIES when they do step in. Hence...the silent/hidden recession. Overall, to date, banks of all sizes have QUIETLY laid off over 60,000 employees. They are bracing for March of 2024. That is when the feces hits the fan again, UNLESS the Fed steps in again and does more. It could extend the emergency lending program, or grow it, and there will be a blurb in the media, and that's it, and we will carry on in our usual blissful ignorance.

This article hints at the problems.
https://www.wsj.com/finance/banking/banking-crisis-plays-out-at-americas-smallest-lenders-0a73211c

Tiggity®

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Every crap mortgage from 2003 until 2008 was an asset.

Dec 27, 2023, 5:02 PM

Until it became "toxic debt". They performed brilliantly until they became adjustable at 5 years. Then they became worthless. A LIABILITY. If I invest our savings into bitcoin at $40K and it drops to $1K, that bitcoin is NOT an asset anymore. Every day it drops, it's a liability (I'm losing money). You are in effect paying money (losing money). It represents a net loss, so however you want to label it, it's a liability. It's money you once had, that you don't have anymore.

You lend your crackhead cousin $1,000 to go buy a new suit for a job interview. Hoping he gets the job and can pay you back as promised. Instead he takes the $1K and buys crack, doesn't get the job, and you lose the $1K. Your cousin went from being an asset to a liability in that scenario. You only chose to call him an asset based on the assumption he gets a job with your money and pays you back.

Then entire financial meltdown in 2008 was because investors saw mortgage backed securities as assets. The bigger the mortgage, the more you lend, the greater the asset. This made a lot of crooks think they were rich. You have this loan, for more than the buyer can afford, but that's ok. Just get him signed up to all he can afford on the front end with 5 years interest only, then rake in the big bucks after 5 years when the rates adjust. That "asset", those loans, those MBS, started defaulting as the rates adjusted at 5 years, And people couldn't afford them. That "asset" the lender assumed existed, failed to produce. It became a liability. It almost wrecked the financial sector.

I signed a 2.125% 15yr mortgage in a lawyers office. Lawyer said the rates were insanely low. He was happy. He's getting business. He and I both agreed though that whoever issues, and sells this loan, or buys it, over 15 years, it will NOT remain an asset for the lender. The lender can not make money on my mortgage. As I'm signing the documents I'm thinking this is great for me, but at the same time I'm thinking the lender almost assuredly loses on this. And they did. In 2003 my best friend tried mightily to steer wife and I into a sub-prime mortgage for $400K. He did that because that loan was a greater asset to his company, the lender. They could make more reselling it as it's packed into MBS. We declined. He made less money on our mortgage. Selling us a 30yr was not as big of an asset to his company. They couldn't sell it for as much, or make as much money on that "asset". This idea that something is an asset based on paper or promises does not always work out long term. IN my 2003 mortgage example, in that case I realized that BOTH my wife and I, AND the lenders, would lose on these mortgages. That's the difference, something I mentioned to IE below earlier. In 2003 you had buyers with homes under water, trying to sell in a flooded market, losing money, and going broke paying mortgages they couldn't afford, AND you had lenders doing the same. This is different. This time it's inflation that hit that killed the asset, not people defaulting on their mortgages. The losses are tilted to the lender in the 2021 refinancing scenario. Great deal for the borrower. A mediocre deal under the best inflation scenario for the lender, but a massive loss if there is inflation.

So when banks started failing in March 2023, and people couldn't get their money from the bank, due to "underperforming assets", well, that's what happened and would have continued happening but for the Fed stepping in. This is why I cringed when my home, my "asset", started skyrocketing in value in 2021. Everyone thinks that's a great thing until they have to turn around and buy a new home after selling their own. I can't afford to sell my house, take my equity, put 100% towards buying a new house, financing the difference, and keeping my mortgage payment the same. Can't be done. Either new homes have to be built, or rates drop, or inflation drops, or property values drop, one (or all) of those things have to happen for me to be able to afford to sell my house, and move into a similar sized/valued house. Even my house, my "asset" with an increased value, is actually a liability to me now, in this market. If I sell it, and buy it right back for the same price, and finance the difference, I'm paying $1,800 a month MORE than I am currently paying. So no one is selling. IS it an asset now? If I sell it, and try and buy something similar, it's like buying the entire house all over again, but at a mortgage that's double. IS that an asset? I'd say not.

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The silent, hidden recession we don't even know about

It doesn't really matter as long as the loans continue to be repaid.

You missed the part where I said this isn't a crisis from a lack of payments

If what you say is true, this could have been a "silent recession"

The value is not a liability, it has just shrunk. Like anyone with bonds

Right, the difference between them making a few less points and them making

Re: The value is not a liability, it has just shrunk. Like anyone with bonds

Exactly what I said. Assets that are now underperforming.***

Every crap mortgage from 2003 until 2008 was an asset.

They are not 'worthless'. LOL. And yes, if you invest in Bitcoin

So, what happens when interest rates start to go back down?

The amount that are assets rises, and liabilities drop.

I'll defer to Google.

LOL. I'll defer to my 40 years of being an accountant.

its kind of an accounting rule.

Re: LOL. I'll defer to my 40 years of being an accountant.

it's an asset......but to your heirs, not yourself right now

I do not want you guys to ever do a personal balance sheet

I don't own squat.

lol..I have no heirs.

So answer me this. The people who owe the money, the loans

I think that depends on who is doing the accounting.

Re: It doesn't really matter as long as the loans continue to be repaid.

Our whole economy has been propped up by QE and fiat currencies

Good luck catching them quinoa catfish in virginia waters***

We got dandelions and poke salat in abundance.***

And a cash crop - weed.***

I think the difference here is it's not just

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