No kidding. Corkface saw this mortgage collapse coming. All of it. He talked of "subprime" and "Alt-A" before anyone on television or the financial press.
Fourteen months ago, in September, 2007, this successful and respected mortgage broker told The Famous Author and me that the normal housing cycle of boom and bust would crash like never before this time. We scoffed. TFA has seen nine housing cycles. Corkface said there were so many bad loans written over the past three years, the loan standards so poor this time, the default rate would skyrocket. And he said Wall Street had so leveraged the mortgages as collateral for new and untested securities, the default rate and dropping home prices could sink the whole system.
Right, we said. What's next, the end of the world?
Paulson, Bernacke, and the U.S. Taxpayer may have partially resurrected the stock market, but the financial system did indeed sink. There is no real bid on corporate bonds, even those with A and better credit ratings. Wall Street is virtually closed. Banks won't lend. The whole economy fell off a cliff in four days last month while Congress debated the need for assistance.
Needless to say, unlike most investors, Corkface pocketed some nice cash over the past year, shorting financials and accurately predicting the demise of Indy Mac, Lehman Brothers, Fannie Mae, Washington Mutual, and AIG.
We have signed up Corkface as our new financial consigliare. His reports and opinions will appear exclusively on this blog as America attempts to recover from the worst financial threat since The Great Depression.
Threat? What threat?
When unemployment reaches 25% or 30%, as it did in the U.S. during the mid-1930s, revolutions start. Enough people can't feed their children, roving bands begin attacking those who do have food and heat. And the rich hire armed guards to catch the hungry thieves and hang them. Sound crazy? Think it could never happen here? It did. In Seattle and other big cities in 1934 and 1935.
Unemployment recently topped 6% in the U.S., and most economists -- and Corkface -- don't think the rate will go higher than 9% before the economy starts adding jobs again. Let's hope they're right.