Hail to the King!

I don’t know if this is a function of the media coverage or a real phenomena, but it looks like a lot of the people at risk for losing their houses in the next wave of foreclosures will be the newly unemployed. Whenever I read an article about foreclosures, the stories feature people who just lost their job.

Now, as far as recessions go, this is not my first rodeo. We had spikes in the unemployment rate in 2001 and in 1991 when the economy contracted. But from my admittedly foggy recollection of news coverage from those days, I do not remember a lot of foreclosures being associated with the downturn.

To the extent that this is a real phenomena, I wonder if this is a function of increasing household leverage. During previous recessions, did folks have more savings that could tide them over a rough patch? Or is it that these days, the mortgages are so large that making the payments exhausts one’s savings more rapidly than in years past?

In an uncertain environment, you want to have more stored fat to carry you through the lean times. Whether because we’re leaner (financially, not physically) or because our burdens are heavier, it seems like people who lose their jobs in this recession are at much higher risk of a financial upset turning catastrophic.

I wonder if some people thought they were “storing fat” though their home equity. Either by making extra equity payments, or rising housing prices, maybe some thought they were storing up equity. The simultaneous drops in housing prices and credit availability have given the lie to that theory.

Cash is king right now, and cash is the only truly liquid investment. Times like these demonstrate the critical importance of keeping an emergency fund available.