Tuesday, December 4, 2007

Well, that's interesting....

Years ago, when I was in college, my work-study job was in the theater technical department. This was where I found out life skills like how to splice tape, run and dress cable, and how to solder three-pin connectors. In short, skills that are mostly useless now, but ones I'm still glad to have.

The theater's Technical Director was a man named Bob Bovard, who had what could only be described as a very dry sense of humor. When something really went very wrong, Bob would stand amidst the wreckage and say, with apparent relish, "Now that's an interesting problem."

Here's a piece of news, that, to put it mildly, is an interesting problem: some banks in the United Kingdom are asking customers to stop borrowing money.

In other words, these banks can't execute their core business for another four weeks. Granted, these are special customers and specific loans, but even so -- imagine calling your customers and saying "please don't work with me for four weeks."

So how did the subprime meltdown get this bad? If you can get past the funky formatting, Richard Martin, a Canadian management consultant, has this very good write-up on how a herd mentality developed. Essentially people were loaning money based on assets that didn't exist, and then packaging those loans and selling them to each other. Now, no one knows exactly how much is in the bag they're holding.

What does this mean for you? One, don't overestimate the degree to which the sky may be falling. But secondly, do make sure the loans you're in now are the loans you can be in for a 3-5 year window.

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