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Credit Crisis 101: Lee Allen Style + Lee’s take on MCD, HD, HOV, LEN, PHM, BZH, FNM, FRE, EBAY, and GM

InvestorsObserver Featured Contributor
Lee M. Allen

As you cruise through many of your most popular villages, towns, and cities across America, there’s one thing that seems to be everywhere. No, I’m not talking about various cups, bags and cartons blowing downwind of your local McDonalds (MCD) golden arches food emporium; I’m referring to all the “for sale” signs that have sprouted up on the front lawns of so many houses.

Smart people on those cable business shows have been talking about this housing bubble and the related credit crunch for quite a while, but it always seems like these calamities are somewhere else. Not in your own community.

So, what started this whole housing/mortgage/credit meltdown anyway?

It didn’t help matters when the rating agencies gave most of these loan packages investment-grade ratings. Some of these packaged investments were even insured by big-time companies with armies of guys who supposedly knew how to work spreadsheets and were not legally blind.

We still aren’t sure exactly what led these rating agencies astray. There’s no way that it could have anything to do with the fact that they were paid by the loan packagers to rate their investments. It’s sort of like paying the driver’s license examiner a thousand bucks to give your kid a driving test. Do you think your kid would pass?

Bobbie sees an “Open House” sign in front of a smaller home that might fit into their budget but, by the time the Sixpacks take the tour, it’s sold. Not to despair; the real estate agent sits down with them and after a few questions she convinces Bobbie and Betty they can actually afford a bigger house. Bobbie’s pay from the Carwash, along with what Betty makes selling the occasional Beanie Baby on eBay (EBAY), would be more than enough to make the payments -- for a while.

After they sign, Betty asks Bobbie, “Why did that mortgage person put my job down as global antique dealer?” 

Bobbie says, “Well, at least they didn’t make it look like you earned more than me.”

Betty scratches her head, “How hard are you going to need to work to make the $150,000 a year? That’s a lot of tips.”

“Not as hard as you to make $125,000 this year sellin’ your dollies and stuff on eBay.”

About ten seconds after Bobbie and Betty signed the loan paperwork the loan arranger - not to be mixed up with The Lone Ranger – hopped on his horse and went to the big city to sell off the loan. Within a few days, the loan was part of a package with thousands of loans from people like the Sixpacks (housekeepers, postal carriers, and daycare workers -- all supposedly making in excess of $200,000 a year) that had been bought and sold so many times, even the guys at CSI-Wall Street Special Financial Victims Brigade couldn’t track all the fingers that had touched the paperwork.

Hearty, hard-working people like the Sixpacks will do just fine. It’s the US economy that will take the real beating.

If you have any thoughts on the housing/mortgage/credit meltdown, please email me at LeeAllen@InvestorsObserver.com.