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"Ponzi scheme"? On the evening news?
Sunday, August 05, 2007
Just as the mainstream media made things worse when the housing bubble was inflating, they're probably definitely going to make things worse now that the airflow has reversed.
The latest evidence comes from last night's CBS Evening News when anchor Thalia Assuras interviewed market analyst Janet Tavakoli.
Well, they really need to put a stop to this sort of talk on the evening news - and quick!
Assuras: Wall Street is catching its breath this weekend after a roller-coaster trading week capped by a 280 point drop in the Dow. The Dow industrial average starts next week down almost six percent since hitting its record high two weeks ago. Joining us from Chicago with more on the market worries is securities consultant Janet Tavakoli. Could you explain to us what's really behind this?
Tavakoli: I think there's a lot of concern about a credit crunch, especially because of the housing market. We've seen a lot of losses in mortgage backed securities and people are raising mortgage rates - we're worried about the long-term effects on the economy.
Assuras: Is there any similarity between this and the internet bubble burst of several years ago.
Tavakoli: No, this is a little bit different because this was one of the largest Ponzi schemes in financial history where, basically, risky mortgage products were made for people who couldn't afford them and so we need to repair this problem and we're also concerned about consumer spending and long-term weakness in the economy and that's what got the market nervous this week.
If they keep this up, people are going to start looking around and finding out what a Ponzi scheme is and figure this whole thing out on their own.
They might find stories like this one, which, coincidentally was written exactly two years before the phrase was heard on the evening news last night.
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Surprisingly, the USA Today link to the million dollar mobile home story still works - here it is: Moblie home madness: Prices top $1 million.
Ahhh ... memories.
And, oh yeah ... Janet, there is at least one similarity between the internet bubble bursting and what's happening in the housing market today:
This week's cartoon from The Economist:
5 comments:
Because of reading the info on sites like this one, some of us were way a head of the curve. My friends who looked at me funny the last few years when I talked about and warned about this, are just now saying, "Oh, is this what you were talking about?" They are all ears now...hehe
Thanks for such a great site. Been reading here for a long time..but only recently started to comment.
Actually, on Nouriel Roubini's blog last week, he was discussing the Minsky Moment and I learned that Minsky defined three types of borrowers:
(1) "Sound" borrowers can pay interest and principal from their cash flow.
(2) "Speculative" borrowers can pay only interest from their cash flow and need to constantly refinance their debt.
(3) "Ponzi" borrowers can service only a portion of the interest and count on appreciating asset prices to service their debt.
So it appears the "Ponzi" label is an appropriate label, at least for the "payment option" or "neg-am" loan.
You mean we all really didn't get rich together? This is all some kind of fraud? Shocking!
I suspect that whether or not the housing bubble meets any one of the many different definitions of a Ponzi scheme isn't the most important point here.
Can some one post a link to Assuras - Tavakoli interview, if available?
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