Sunday, April 17, 2005

Massive Frauds Put Us All At Risk

This NYTimes article shows that the financial scandals now unfolding have a real impact on peoples lives and will bankrupt those who may seem immune. "People who relied on Reciprocal, and held malpractice policies that evaporated without warning, say they feel betrayed by convoluted financial dealings that they barely understand."

"'He's a young man and he has a nice annual income,' Mr. Mullinix said of Dr. Schroeder. But 'he's got kids and mortgage payments and he doesn't have $650,000.'"

"Many hospitals that were insured by Reciprocal face millions of dollars in unexpected costs. Since the company's demise, they have postponed renovations and purchases of new equipment. Smaller hospitals worry that the extra costs may overwhelm them. "We could be wiped out financially.'"

Though tedious, we should pay attention to stories like these. This situation is being played out in a thousand companies and in many markets. Mortgage backed securities, Fannie Mae, GM, AIG, MBIA, over priced home builder stocks; all are symptoms of the credit bubble that has put us at one of the most dangerous financial moments in history.

3 Comments:

At 8:46 PM, Blogger Sunny said...

Ben, I like the characterization of the problem as a "credit bubble" more than a "housing bubble". The fact that people are grossly overextending themselves financially to make irrational real estate purchases is one part of a greater whole. Real estate has become the greatest financial maltese falcon for most consumers because of its emotional element ("Its a place to live."). Most consumers won't leverage their futures wholesale to buy a stock, but for a home it looks like they will. We can only hope that the falcon isn't made of lead. :-)

 
At 9:30 PM, Blogger Ben Jones said...

Hi Sunny,
(The fact that people are grossly overextending themselves financially to make irrational real estate purchases is one part of a greater whole)

Thanks for helping us out here with your experience. I see it as a part of the credit bubble and RE just got caught in the storm. That's important because when the pain comes, people are going to want to punish those responsible. RE professionals who maintained their ethics have nothing to be ashamed of. I blame the Fed and congress in that order.

 
At 11:46 PM, Anonymous Anonymous said...

Well you sell the kids and keep the house. It's easy. That's what they do in poor countries. Is USA a rich country ? I always forget the answer. Anyways it is less and less the case each passing day.

 

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