Rant: The U.S. facing the largest financial collapse ever

[Tim May]

On Friday, July 12, 2002, at 04:16  PM, John Young wrote:

> Bear in mind that the holders of US debts do not want the debts
> paid, only the interest, and in fact want both to increase as they
> have consistently since the US government went into hock.

Most such debts have finite lifetimes. For example, the 10-year Treasury 
note, which is currently the de facto standard. At the end of 10 years, 
it's done with, period. The principal is repaid (unless the debt was of 
the kind that pays an interest rate and a principal reduction part). Now 
the debt holders may well buy other instruments, and usually do, but it 
isn't an especially accurate or useful model to say "holders of US debts 
paid, only the interest."

> Gigantic debts by well to do are signs of accomplishment and no
> wealthy person wants to be large-debt-free.

I know many wealth people, and this is not so. (*) Most of them have no 
significant large debts. Many of them have mortgages on houses, because 
of the way the IRS subsidizes mortgages over other kinds of debts.

"Net worth" is this: assets minus debts. This is why "high net worth 
individuals" are so characterized.

(* The high net worth individuals I know range from people with several 
billion in assets, down to tens of millions (I believe, but most don't 
say publically or to me), and on down to the few millions or less.)

> The biggest debtors are the super rich, and their combined debts
> exceed that of the US Government. Such debts are customarily
> called investments purchased with borrowed money or other
> forms of investments.

Current margin requirements are about 50%.

When stocks or other assets drop, margin calls result. Bernie Ebbers got 
a big one a year or two ago on Worldcom.

I've known folks who have gotten margin calls, and it isn't pretty.

Most folks I know, the wealthy ones, tend to keep their margin debts at 
a small fraction of the allowable maximum.



--Tim May, Occupied America
"They that give up essential liberty to obtain a little temporary safety 
deserve neither liberty nor safety." -- Benjamin Franklin, 1759.