New York Renovator

Interesting news from Bloomberg this morning: the second-largest U.S. securities firm is tightening the home-equity belt.

Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won’t be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn’t public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.

I’ve never liked the idea of a home-equity line of credit. It’s risky for investors and it is incredibly risky for home-owners. It’s far too easy to spend into the indebted obscurity of a black hole. I would never, never, never get a line of credit for this house– it would gobble up every dollar and then demand blood. It is essential to have a budget and stick to it.

But this move by Morgan Stanley sends shivers up my spine. They are being secretive about their losses, but speculative estimates are upwards into the billions, most of which is unrecoverable.

The president and his cronies can toss flower petals all day, and say that the economy is “good” or “recovering.” But when you see the biggest and riskiest of banks and firms closing their doors and shutting down lending systems, it evokes bells and whistles that things are going down for a while. I’m as optimistic as any one, but it would be plain dumb to pretend that nothing is wrong and to keep spending, spending, spending like drunken sailors. Why oh why is our government the first to create the problem and the last to fix it?