On the news of saving WaMu, JP Morgan stock is up about 10% today.

There are some companies that are in trouble than can be helped as we've seen with the other buyouts.

I suspect more buyouts will happen but not everyone can be saved.

AIG could not be helped because they insured a bunch of mortgages without actually having the money to cover the policies. They did this because they were greedy, they were unregulated and they were arrogant in their evaluation of the market. It should be noted that AIG was not actually an insurance company, they just happened to insure loans. Go figure.

This is where the domino effect starts.

A bunch of people default on their mortgages. The lenders now have an asset that is worth less than the cost of having it on the balance sheet. They go to collect the insurance and AIG runs out of money meaning everyone is effed except for the person who sold the house (unless they reinvested in the real estate market).

Also, a lot of the problem is that people were approved for loans that had interest only payments for 5 years or low rates for 5 years and then balloon payments. Now that those are coming due and the houses are not worth what they owe on them, they cannot refinance.

I have a hard time feeling bad for these people because twice during the past 6 years I have purchased a house.

Both times I made a modest purchase that I would be able to afford even if there was a downturn in the economy. I also always went for the fixed rate mortgage knowing that I would never have to deal with a suddenly large mortgage payment.