Disintermediation

Wow.  Just had one of those wow moments coming to the office to study for a bit.  I was listening to Dave Ramsey's Final Peace University CDs on debt myths.  Anyway, Dave starts talking about the savings and loan failures in the 1980s.  That's when the adjustable rate mortgage appeared. 

To explain the story: most of the bank failures occurred because interest rates dropped significantly.  So banks had a lot of old loans that were sitting at 6, 7, or 8 percent.  During the Carter years, the interest rates skyrocketed.  And suddenly, in order to attract new business savings deposits had to pay out 10 or 12 percent.  Now the bank is to having to pay out more money than they are taking in.  This caused quite a few bank failures.

Now, here we are in 2012, almost 2013.  Looking at Market Watch for today, it looks like a 30 year fixed mortgage is running at 3.45%, and the 15 year fixed is at 2.86%.   Everyone and their dog that can refinance in this market will refinance.   So now banks are tied to receiving between 3 and 4 percent interest for a long time and a lot of money.

What happens if the interest rates jump up again?  Once again, banks have to pay out more than they are taking in, and we have another banking crisis.  Now you see my WOW moment.  Fun things, fun things. Let's hope there are a lot of adjustable rate mortgages out there so the banks survive this crisis.

I wish people would have taken out fixed rate mortgages, but what can you do?  Not everyone has any degree of financial intelligence.

Now the question is: how do I position myself to profit off this happening again?