You are very correct about non essential credit in the US. As the housing market starts crashing
, I fear that will be the next domino. So many people bought, or refinanced their houses with either 100% financing OR, 100+% meaning that the banks actually allowed people to bet their debt that the market would increase enough that the equity on their house would come up to the value of the loan given for the houses. In some markets people were able to get 125% loans on their house, meaning if the house valued at $500,000 they could get a $625,000 loan on the house to either buy and upgrade, buy and consolidate other debt or buy in a tight market where houses were tighter than demand.
Other real estate plans that are going to cave in soon are the "interest only" and "bubble" loans. Interest only loans allowed folks to gamble that the house would appreciate enough that they could make payments on interest only knowing that when they sold there would be equity in the house for them. Basically a $500,000 loan would never reduce as long as the family owned the house. The Bubble plan would have a reduced payment with a large bubble attached at the end which would accomodate the expected windfall associated with increasing real estate prices. Both Bubbles and Interest Only loans, plus the "Value Plus" loans are starting to come up bad.
A friend bought a house in March in Atlanta, had to move in September and the sell of the house in a saturated market meant that his $500,000 house in March was sold for $400,000. The buyer wrote a $400,000 check to his mortgage company and my friend wrote a $100,000 check to clear the debt.
I expect to see many "fires" as this booming economy continues to roar.
Post#22 from that Celebrating that Quarter Trillion Dollar Deficit http://www.benzworld.org/forums/off-...ng#post2063740