Wednesday, July 18, 2007

Risk. The Housing Market's Weakness Is A Ruse

Today, we have a serious event unfolding. Bear Stearns had two hedge funds implode. Billions of investor dollars just disappeared. Reuters raises a serious question as to whether Wall Street can be trusted on this issue. The answer is obviously no in my estimation. I sound like a parrot with my continued statement of such but Wall Street has disregarded proper risk management for years and there are many other known issues which are a result of improper risk management. The majority of which have nothing to do with real estate. How and when they resolve themselves is simply a matter of time. Yet, to be fair it is not just Wall Street's lack of risk management that is the problem.

Let's get real. I've generally defended the American consumer on here and other blogs time and again. When the consumer experiences heightened risk or unknowns, they have no choice other than to quit spending. The consumer's world is immediately self-correcting. Even with the availability of credit. Actually, the availability of credit creates a potential for financial slavery as many of our founding fathers wrote about centuries ago but that is not a topic for this blog. There is no historical precedence of the consumer bringing down the economy. The consumer doesn't have the wherewithal to create significant imbalances in the economy. As I've said, housing is bad and will get worse but it is a symptom of the problem.
posted by TimingLogic at 11:09 AM

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