The Ignorant Investor

I've been working on a post about investing in bonds but haven't been able to make it work, so instead I'm going with this little nugget from Investors Business Daily:

Banks continued to loosen their standards for making residential mortgages even as they reported weaker demand over the last three months, said a Federal Reserve survey of banks' senior loan officers.

The findings follow recent reports of slowing growth in mortgage debt and a drop in applications for new mortgages, as higher interest rates keep more home buyers on the sidelines.

This cannot be good. Bringing more bad loans into the system at a time when a lot of current borrowers are exposed to rising interest rates through adjustable rate mortgages seems like a recipe to increase the default rate on mortgage debt. The question is, just how many loans going bad does it take to send a massive shock through the financial system from which we would all suffer?