What Did You Do During the Depression, Daddy?


According to financial experts interviewed on “60 Minutes” recently, the Sub-chief Mortgage Crisis in the United States was only the tip of the iceberg.

That, they said, is because two other types of highly speculative mortgages which were widely sold during the past 5 years are beginning to reset.

That is, the initial rates, some as low as 1%, are about to reset to much higher rates, and another equally disastrous wave of defaults and foreclosures, which has already begun, will probably consequence in another 8 million Americans losing their homes in the next few years.

Whitney Tilson is an investment fund manager who has attracted the attention of fund managers themselves handling about $10 Billion dollars. Tilson is the founder and Managing Partner of T2 Partners LLC and the Tilson Mutual Funds.

A year ago, Tilson expected that sub-chief mortgages were just the tip of the iceberg. As 60 Minutes revealed, “In 2007, Tilson teamed up with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work, analyzing the millions of mortgages that were bundled into those mortgage-backed securities that Wall Street was peddling. It found that the sub-primes, loans to the least credit-worthy borrowers, were defaulting. But Amherst also ran the numbers on what were supposed to be higher quality mortgages.

“It was data we’d never seen before and that’s what made us realize, ‘Holy cow, things are gonna be much worse than anyone anticipates,'” Tilson says.

The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.” The option ARMs, in particular, lured borrowers in with low initial interest rates – so-called teaser rates – sometimes as low as one percent. But after two, three or five years those rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.

Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.”

Whether you are a Real Estate specialized or a long-haul trucker, this information cannot come as good news. A enormous financial disaster is already upon us, but, if Tilson is correct, things are going to get much, MUCH worse in the next few years.

When asked just how big the coming disaster might get, Tilson said, “Well, the sub-chief is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That’s probably another $500 billion to $600 billion on top of that.”

In short, friends, things are going to get immeasurably worse before they get better, and the only question that matters is this: “What are you prepared to do about it?”

A world-wide financial meltdown, one greater in extent than the Great Depression of 1929, lies just around the corner.

Tens of Millions of jobs will be lost – yours perhaps among them. Will you take your place in the soup lines, or will you seize the opportunity presenting itself and take control of your future instead?

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