Debt Revolt - Could It Happen? What If It Did?

The New England Patriots look to make history tonight. One game stands between them and a perfect regular season record. Not since the 1972 Miami Dolphins went undefeated has the NFL had this occurrence. Is this amazing? It certainly is in the modern era. "Parody" is a key term in the NFL and it makes it extremely difficult to have a consistent winning team. I have already heard that the Patriots will be undefeated, but that their schedule was weak. That is pure fantasy. A look at the teams they have beaten this year is a roll call of most playoff teams. The Patriots have soundly beaten:

• San Diego Chargers, 38-14. This beating was the reason for the start of the Charger poor run which they have turned around.
• Cleveland Browns, 34-14. A young, talented, almost playoff team.
• Dallas Cowboys, 48-27. The best team in the NFC crushed on the road.
• Washington Redskins, 52-7. A probable playoff team, the Redskins have been serious trouble for every team they have played, except one!
• Indianapolis Colts, 24-20. A tough, gritty win on the road against the defending super bowl champions and the second best team in the league. A great win.
• Pittsburgh Steelers, 34-13. A dominating win against the leagues best defense.

So clearly the Patriots have taken and beaten all comers. Does it matter? Not if they lose in the playoffs! History only remembers the final trophy holder. With that said, it is still a worthy accomplishment by the New England team and I salute them. Of course, they could always lose the game tonight and this is all for nothing, but I think they will pull one more out. The only thing that stands between the Pats and another title is the looming rematch against the Colts which may take place in poor weather. That game is a huge one.

Karl Denninger's 2008 Outlook Post

Market Ticker has his 2008 review and forecast up tonight. The post is excellent as usual, but it takes some time to read. I recommend setting aside a few moments to fully understand the great explanation Karl provides of the current mess. Here is the link: http://market-ticker.denninger.net/2007/12/year-in-review-and-look-ahead.html

In the Hyperinflation vs. Deflation debate, Denninger comes down strongly in favor of Deflation. His reasoning is extremely hard to argue with. The prospects for Gold and mining stocks may not be what you think they are, so pay special attention to that section.

Of course, I cannot compete with such a post so my own humble prediction post will come another night!

Debt Revolt - Could It Happen? What If It Did?

I am going to skip the headline type content and instead put out a theoretical idea I have been kicking around for a while. Let's try to flesh it out and start a discussion.

It is well known and documented that a large part of the country is populated by people with less than stellar financial knowledge. These masses have absorbed the "use debt to live like a king" mentality. They use multiple credit cards, rolling car loans, and trick mortgages with home equity extractions to live far beyond their means. How large is this contingent? I have no idea. It is probably smaller than I would guess, but possibly 10-15% of adults over the age of 25 operate this way. With their entire money input accounted for, they save nothing and rely on low interest rates and new credit streams to play the monthly payment game.

But something is amiss. Home prices are falling and will continue to do so. Wages, stagnant for the last 5 years now may even go down or disappear when unemployment goes up. New credit streams may be nonexistent, or so expensive that they are not feasible. Without the ATM of home appreciation and without low interest credit cards this consumer may FINALLY look at the pile of debt they have amassed and come to a profound conclusion.

The conclusion? Screw It!

The type of person that lives this way is gullible to start with. They have bought into this debt bomb idea and were promised all the way that things will eventually work out for them. That is becoming a real problem for all but the most silly to recognize right now. Faced with a pile of debt for things that have nowhere near the value expected, why not just default on the lot of it?

One argument I hear is that there is a stigma attached to bankruptcy. I have been told that losing a home to foreclosure is an embarrassment. I think bankers must start those rumors. The type of people I am discussing knew they were gambling financially, in fact, they sought it out. The bet has gone bad now and I do not see any reason why they will stick things out and try to repay. If I was a financial advisor to someone in this spot I would counsel defaulting on all debts.

So if there is no shame (everyone is in the same boat) and no stigma (it's the smart thing to do!) then what could stop it from cascading? Laws that keep debt on the books and attempts to recover losses by creditors would be a problem. Wage attachments could also be an issue. The problem I see is that the sheer numbers involved here would make chasing defaulters impossible. Think about it. If after 2008 every "homeowner" that was 20% or more underwater on their mortgage defaulted, just what in the world do you think the banks can do? At that point the banks would be fighting for life and looking to the government for help, not chasing joe smoe for his mortgage payment. Likewise for credit cards. Imagine car repossessions in the millions! It is just not feasible.

I do not think we are anywhere near this kind of event. I have just been thinking about it over the last week. The question boiled down is this:

• If US consumers that are up to the ears in debt make a decision to let it all go and try to start over 1) What would things look like? and 2) What could stop them?

Hopefully this idea will catch on and a real debate can be started. Use the comments section and by all means try and link this question anywhere else you may read. I think it is an interesting mental exercise.

For some fun stuff on Saturday Night!

I love the whistle song from Gheorghe Zamfir in the film "Kill Bill Volume I". Very good tune used at great points throughout the film:

Christmas Opossums?

moar funny pictures

Remember the film "The Birds"?

moar funny pictures

Have a good night.