Juggling Dynamite

The number of wealthy individuals and families filing for bankruptcy jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center. See: Bloomberg: Wealthy Families Face Bankruptcy
“Wealthier people filing for bankruptcy typically have large homes, two car payments and children in private schools, said Leslie Linfield, executive director of the Institute for Financial Literacy in Portland, Maine, a credit-counselling and research group.
“You’re living on the edge, you’re juggling those financial balls,” Linfield said. “When one ball goes, they all fall down.”
Listings of homes for sale worth $1 million or more increased 27.3 percent in July from October, according to Zillow.com, a Web site that tracks real estate transactions. The number of homes sold with a value between $1 million to $2 million fell 23 percent in July from a year earlier, according to the Chicago-based National Association of Realtors. There was a 21-month supply, up from 16 months last year.”
This is US data but the spike in bankruptcy filings across all socio-economic groups is up all around the world. Over the past few years there have been a lot of people in the world with too much real estate: too big, too many, too expensive. Now with the downturn they can't keep up the payments and they are not able to sell it, liquidity has evaporated in most upper-priced markets.
“Real estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.”
Meanwhile today we learned from real estate data firm RealtyTrac that foreclosure filings overall increased 18% in August and though foreclosures had been forecast to peak in 2009, it now appears they are likely to increase for another year at least. See Reuters: US foreclosures near record, peak in late '10
Incredible times we are living in. People are learning (the hard way) that assets bought at bubbles prices are ultimately wealth destructive not “investments”. And that liquidity is a mirage when everyone is trying to sell to raise cash. Only cash is as good as cash. One can never have too much money that they can't still go broke if they spend too much and buy over-priced “investments”. Lessons we can all live by.

Meredith Whitney, founder and CEO of the Meredith Whitney Advisory Group, discusses financials and the state of the credit market on CNBC. Two things I appreciate about Whitney are her ability to explain the interconnection of banks, credit, housing and the economy in a common sense way; and the fact is that she is now given lenghthy time for her interviews which allows for a fuller explanation of her thoughts.
Bottom line:
Nothing fundamentally has changed with the banks. The government intervention has just kicked the can down the road. She expects another major leg down in the stock market:

And “There's no doubt that home prices go down dramatically from here.”: