This Isn't a Sub-Prime Problem

The headlines read that the stock market is heading for trouble because of the "sub-prime" mortgage problem. Ben Stein said last weekend that the sub-prime problem is grossly overstated. He points out that sub-prime mortgages make up such a small part of the entire mortgage universe. (I still cannot figure out how an actor turned economic commentator is qualified to give economic analysis.)

Well, that is a relief! That makes for a great soundbite and something that the fox commentators can argue over for an hour while whipping its television audience in the process.

This is a credit problem resulting from a 25 year busting of a credit bubble. This stems from lenders writing irresponsible mortgages to consumsers who could not ultimately afford them. At the root of the problem is the adjustable rate mortgage. These mortgages come due and consumers cannot make their new higher payment. Consumers are dropping like flies and homes are going into foreclosure. Incidentally, 120 billion dollars these loans are coming due the second half of the year.

AIG and Countrywide (the biggest of the biggest mortgage writers) both said in a statement that this is spreading to the prime loans. Adjustable rate mortgages were written on ALL types of loans and in great number. Mortgage lenders were (and still are) selling the American Dream for the low monthly payment.

Now these consumers are in a world of hurt.

So follow the smoke and you will see the problem. Irresponsible lending equals Consumer problems equal high foreclosures equal a worsening of the real estate bust equals problems problems in the credit markets equal problems in the stock market equals problems for the economy.

Good credit, not so good credit, and bad credit. It is all about the bursting of a credit bubble that has been building for 25 years. That is the problem.

My problem with pop culture analysis is that it has no substance. No one on financial television is brave enough to tell the real story. Many of these analysts work for big brokerage companies and have taken the creed. Repeat after me....We are always in a bull market and there are no problems ever. Even when there are problems we are still in a bull market. Bear markets don't exist.

Then some of them are just actors.....Bueller, Bueller, Bueller??