“Housing slowdown may hit bank profits -Regulators warn that the few ‘positives are starting to fade’ in banking.” – CNN Money

I saw this one about a month ago and didn’t know what to make of it. But now I’m thinking.

We all know what happened in 1929. Then poeple went on a buying frenzy for stocks. They bought on margin (money borrowed from Brokerage houses) and when stocks rallied they loaded on even more. When the floor fell through, liquidity in the markets were sucked dry. Investors scrambles for the banks since the banks lent to the brokerages, who lent to investors. When the cycle reversed itself money literally disappeared, lenders went broke and banks went out f business by the dozens.

Now we have the same story with a twist. The FDIC has promised to insure banks from such a collapse again, but are they insured ad infinitum? Would the government supply (print) cash reveling in the another Great Depression?

In those days the Stock Exchange, today the Housing market. Then they bought on margin, today they buy with ARMs, HELOCs, (I don’t even know what these mean). Yesterday they wanted CTR (today it’s IBM), now they buy condos…with other condos.

So when 44% of the people say that they think the safest place for their money is in cash…(see article)…I just don’t know what to tell them. Cash is King, yes. But the king can also have a bad day.

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