The Collision of Collapses


The media talks of the housing market collapse, the tightening credit market and the stock market collapse.  At DSA, we’ve found investors that simultaneously got caught by falling home & securities prices and a tightening credit market. Here are two examples:

 

1)      During the days of easy credit, a man took out a line of credit on his paid-off house to invest in the stock market.  His investment account’s value has plummeted and his line of credit has been cut by the bank. He cannot repay the line of credit and may lose his home.

 

 

 

2)      In 2006, a couple used a margin loan to pay for home improvements in order to sell their house for a higher price.  They are unable to sell the house and repaid the margin calls by selling securities for a loss.