Tale of Two Problems....

While the news mainly follows the credit/banking crisis, the other news, serious problems in the actual economy. Industrial output is down 2.8%, largest decline since '74. Chart above shows retail sales slump. This will lead to calls for economic stimulus outside of the bank credit stimulus. Yet, this issue remains essentially unaddressed. That coming fight will be structural stimulus v. checks. Pehaps we'll get some bridges and infrastructure this time, instead of Sony getting the money for their government check-for- plasma TV program.

Compounding the problem, S&P may downgrade 280 billion in alt-a mortgages.

More Pain and Defaults to Come....

Two reports here: 1) "option ARMS" 2) Alt-A.

1) Option arms are predicted to be another ticking time bomb which may be the reason so many normally conservative folks are calling for total socialism in the form of universal mortgage re-sets. Read about the bomb here.

2) S&P shows that Alt-A (above sub-prime) delinquencies are also going up, here. This causes serious concern, if the housing market continues to fall (it will) it will incentivize people to walk away from even alt-A and other loans putting more asset into default and on the market where the only buyer appears to be the government.

That's why even conservatives and the WSJ are allowing use of their pages to promote an old liberal idea: The Feds re-setting EVERY AMERICAN'S mortgage to 5.25% for 30 year fixed. Read here. That article going from the Nation to the Wall Street Journal in a few months is a paradigm shift which bends the mind. Now that socialism has been kicked off by the American conservative party, will any politician be able to say 'No' to any populist proposal such as this?