Kong Sez:

    We here at the Chembio headquarters knew there was something different about people's attitudes these days, but we didn't realize quite how radical the change was until we read the following anecdote. If you haven't noticed that people now feel no compunction about shafting their creditors, you soon will. This attitude crosses all classes, including those who can well afford to pay their bills.

    The more the big banks get away with in terms of big bonus payouts and high living, the more you will see of the following:

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The Second Shoe Is About to Drop on the Banks

By Jeff Clark

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"I live in luxury and I haven't made a mortgage payment in almost two years," Don bragged. He sipped his chardonnay, leaned against the country club's bar, and shared with me the story of his real estate prowess...

"I paid $3.4 million for the house in 2006, and it was worth every penny at the time. It's 6,700 square feet with a pool and a one- acre lot. I'm on the hill overlooking the fourth fairway, and I can see all the way to [the next city] from my bedroom window," Don continued.

"Wachovia Bank loaned me $3 million, and the developer took a second for $400,000. I don't have any skin in the game – so to speak. I made my mortgage payments for a while, but when prices started to fall, it just didn't make sense anymore. I mean, why should I pay anything when I'm the only one with nothing to lose?"

"But," I asked, "hasn't the bank tried to foreclose or force a sale of the house out from under you?"

"Ha!" He crowed, and his tone emphasized the naiveté of my question. "Why would they do that? The house is worth less than $2 million right now. So if the bank forecloses, it'll have to recognize a $1 million loss. And if it writes my loan down by that much, how many other loans do you suppose it'll have to write down? It can't force a short sale [where the bank sells the house for less than the loan amount] on me either because it'll have to take care of the second note holder by offering him something just to get out of the way. So Wachovia is screwed. It's cheaper for them to let me keep living there for free. And the best thing is, I can more than afford to pay off the entire loan right now." Don let out a sinister kind of chuckle, like a man who just squashed a bug and got some warped sense of delight from doing it.

"Wow," I responded. "There used to be a time when being a deadbeat was frowned upon. But you seem to wear it as a badge of honor."

"Listen," Don turned aggressively and pointed his index finger at me. "You think I'm the only one doing this? You think I'm the only one taking advantage of the situation? I'll bet half the people in this room are doing the exact same thing." He waved his arm across the bar. "And the other half are thinking about doing it."

"Besides," Don continued, "banks have been screwing people like us for so long it's about time they got a taste of their own medicine."

His words hit me like a Louisville Slugger across the forehead.

We no longer live in a time where men are bound by honor to repay their debts. As sad as it is, people feel justified welching on their agreements.

And the banks have played a big role in this transition. They charged 29% interest on credit cards while paying 0% interest on savings. They knowingly lent money to people who could not afford to pay it back. They used taxpayer-funded bailouts to pay million-dollar bonuses to their corporate elite. And they shipped all of their service-center jobs overseas.

Let's face it: The banks most of us do business with today aren't like the Building and Loan George Bailey operated in It's a Wonderful Life. Our banks are faceless, nameless, brown bag institutions whose only concern for the customer is to make sure he pays the $10 monthly account service fee.

It is that business practice that has fostered the resentment of people like Don and made him feel justified breaking his agreement. Like it or not, agree with it or not, Don's opinion is gaining popularity.

And as that sentiment grows, it is likely to provide the weight that pulls the second shoe down onto the industry.

Best regards and good trading,

Jeff Clark

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Kong Sez:

    With this in mind, folks, be prepared for a second stage in this ongoing banking crisis. Everyone would like to think we've bailed them out, they've paid back their TARP loans, and all is now well. Nothing could be further from the truth.

Banks are not lending, which is how banks make their money. Banks are not collecting on many of the mortgages they own, nor are they collecting on a lot of the credit cards they issue. According to many financial experts, banks are about to be hard-hit again this year as more option ARMs (adjustable-rate mortgages with the option to pay only the interest, or some other small payment that is far less than the regular payment) are due to reset this year. Upon those resets, many more people will ask themselves why they are bothering to make any payment at all, because if they couldn't make a regular payment before, there's no way they'll be able to make the newly reset payments. And there will be no more "options."

The second stage of the housing-banking crisis is coming due, folks, and when it hits, we look for more and more people to have an attitude like Don's in the above piece. In fact, we think people will be twice as mad, and with twice as much reason, especially if what we hear about big-bankers' bonus payments this year is true.

Tomorrow...Six Months To Live!

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Viva La Revolución !!!

    "Is it a rebellion?" asked Louis XVI of the count who informed him of the fall of the Bastille.

    "No, sire," came the reply. "It is a revolution."

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