The accent may be on the wrong syl LA ble.

A friend mentioned that he had heard that a very large bank was talking to the Fed about liquidity problems. He was nervous that we might be on the brink of something way uglier than most are thinking.

He had probably heard the first rumblings about the Bear Stearns calamity. JP Morgan Chase agreed Sunday night to acquire B-S but the problem in the financial markets is widespread and still growing. The Wall Street Journal has a short history of troubled investment bank sales here: snipurl.com/21y4f

We recovered from the junk-bond market debacles and from the savings and loan scandals and from the insider trading/arbitrage adversity. We will recover from this sub-prime mortgage mess, too. Nonetheless, I am not happy about owning banking stocks right now.

That said, I have two thoughts for my friend.

Really.

Just two.

(1) 99.94% of the ARM crisis has been caused by systemic fraud (as in felonious behavior) on the part of the mortgage sellers and particularly the banks that financed the mortgages, then resold them as “secure” investments to pension funds and the like. The only good news is the Saudis and the Chinese appear to hold at least some of the paper.

(2) There is no real real estate problem no matter what the news says. Lemme repeat that. There is no real real estate problem no matter what the ID10Ts in Congress say.

We own a house. The roof still keeps the rain off, the heat still keeps the cold out, and the rent-a-cat still curls up by the fire. It absolutely does not matter to me today if this house is worth a dollar, a million dollars, or something in between. As it happens, the house is worth more than when we bought it. Yay! It’s also worth less than it was a year ago. Boo! Oh, wait. I didn’t sell it a year ago and I don’t plan to sell it today so its value on the market is of absolutely no consequence to me.

OK, its value on the market is of absolutely no consequence to me except when I pay taxes on its value but that’s a whole nother story.

Now the bad news. In other words, here’s why my friend may be right.

Nobody believes me.

We are so driven by this Chicken Little squawking about the housing sky falling that we really really believe the end is nigh.

And so it will be.

For a while.

Wot to do, wot to do.

Buy.

Warren Buffet is a whole lot smarter about this stuff than I am. His advice is simple. When you find a good property at a bargain price, buy it. Unfortunately, nobody believes him right now, either.

It’s not just the economy. It’s the stupidity of the herd that drives the economy.