Recursive debt is a term I thought of tonight that I think best describes what will happen to your average, fixed income, sub-prime loan holder who can't accommodate imminent rate increases (as their teaser rate expires).
It's what happens when all the layers that were precariously stacked to make a loan that shouldn't have been, unravel.
It's a never ending financial domino effect. (Actually, there's an ending called "foreclosure" but that's not as easy as it sounds.) If it happens to millions of people at once, it could be like nothing we've ever seen. Easily an economic party pooper.
Don't worry, it won't affect you if you're really creative. But stay on your toes.
Good term, I like. Here’s a great explanation of how all the crazy mortgages got made:
http://www.nytimes.com/imagepages/2007/08/05/weekinreview/20070805_LOAN_GRAPHIC.html
I especially like steps 3 and 4, where subprime mortgages get diced up to create AAA (best credit).
@MikeInAZ: Nice graphic! What’s really funny is that all of this explains the strange nervous (almost guilty) vibe we’ve been getting from our loan agent, as we are closing on the refi of one of my properties this week—just in time! :)
It all kinda gets the blood flowing, especially if your not just a spectator.
Excellent use of recursion! I think I’m going to use the term for the practice of buying stocks on margin as well.