A Ticking Time Bomb

Charts: The S&P 500 closed at 1123, up .4%. Above 1120 is good. Everyone is on pins and needles about Friday’s big jobs report.

Fundamentals: A raft of data came out today that was generally good. Except for the housing data. This brings up the big picture of proposed financial reforms. Whenever American real estate prices take a sharp dip homeowners bailout of mortgages and the financial system suffers a severe crisis. This doesn’t happen in any other advanced country. Take Hong Kong as one example. Real estate prices there can fall by 50% in a given year, a much steeper drop than anything ever experienced in the US. But even with a fall that great Hong Kong homeowners by and large don’t default, the city-state’s financial system is barely ruffled, and real estate prices always bounce back without government intervention. Real estate loans are recourse in Hong Kong (and everywhere else except America) plus there are steep minimum down payment requirements. In other words, in Hong Kong financial instruments don’t have built in consumer protection but corporate protection. What this all boils down to is that the Demos proposed consumer protection agency that is supposed to rework every financial instrument to afford greater consumer protection is a ticking time bomb. That is if it passes.