From time to time, we’ve written that the hope of many policymakers, that struggling subprime borrowers would be salvaged by loan modifications, aka “mods”, would likely be disappointed. A Financial Times story, “Mortgage lenders in subprime ‘traffic jam’,” bears this thesis out. Let’s back up and note that loan modifications are often the best course […]
Read more...Martin Wolf, the Financial Times’ economics editor, may have called the demise of securitization prematurely in his article, “Securitisation: life after death.” This is an odd piece for the normally thoughtful and pragmatic Wolf. On the one hand, he gives a succinct and colorful of assessment of the credit crisis, depicting it as yet another […]
Read more...Psychologists, when working with patients, need to differentiate between two types of people: internalizers and externalizers. Internalizers are very responsible and tend to blame themselves for Things That Happen, whether they are their fault or not. They fit well in jobs that demand professionalism and personal responsibility. By contrast, externalizers blame everyone else for their […]
Read more...Two gloomy sightings on the housing front at Bloomberg. The first was the release of wretched existing homes sales data for August, which followed a July that also showed serious deterioration. The only possible positive spin is that the rate of decline was lower in August than in July, but the August figures were an […]
Read more...Bill Gross. chief investment officer of bond investment giant Pimco, uses his monthly newsletter to tackle the question of whether the Fed and the Treasury really understand what they are up against. Although he reaches no definitive conconclusion, he suggests they have a bank-centric, and therefore badly outmoded, view of the world. We’ve raised this […]
Read more...Tim Duy, economics professor at the University of Oregon, posts from time to time on Mark Thoma’s blog, Economist’s View, and Fed watching is one of his favorite topics. His latest, “The Fed’s Next Move,” is particularly thorough and cogent. He goes through the case for further rate cuts and finds the consensus view, that […]
Read more...Tanta at Calculated Risk, in one of her usual colorful explanations, tells us the real pitfall of stated income loans, and it’s not one you might expect. She works through an example of an entrepreneur who doesn’t report all his income (as an aside, she’s not keen to reward that behavior and works through the […]
Read more...The prolonged disconnect between the debt and equity markets is bizarre. Historically, credit market corrections precede equity downturns; once in a while, as in 1997-1998, they send a false positive, so equity investors feel justified in not taking every blip in the credit markets to heart. (And we aren’t the only ones to think along […]
Read more...The New York Times’ Grectchen Morgenson, in “Can These Mortgages Be Saved?” looks at Countrywide’s loan modification operation (in typical bureaucratic doublespeak called HOPE: “Helping homeowners, Offering solutions, Preventing foreclosures and Envisioning success”) and finds it wanting. Unlike some recent Morgenson pieces, this article is remarkably free of snide remarks or swashbuckling prose. Instead, Morgenson […]
Read more...As the housing numbers come in, they keep getting worse and worse. From Bloomberg: Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, underscoring the Federal Reserve’s concern about the broader economy. Purchases declined 8.3 percent to an annual pace of 795,000, the […]
Read more...You know things are bad when famed permabear Nouriel Roubini’s forecasts turn out to have been cheery. In today’s post, he reviews his calls on housing starts and home price declines and finds them to have been too rosy. From RGE Monitor: This author is well known as one of the biggest bears about the […]
Read more...Investment banks are learning about reputation risk the hard way. First we had Bear Stearns winding down two troubled hedge funds it would have rather cut loose and let sink on their own. Then Lehman was pilloried in the Wall Street Journal, in “How Wall Street Stoked the Mortgage Meltdown, for its particularly close relationship […]
Read more...Some quick updates on what market prices reveal about investor expectations. First, Bloomberg tells us that Treasury note prices are trading sufficiently far below Fed funds as to predict another rate cut before year end ; Since the Fed last week lopped half a percentage point off the central bank’s target for overnight lending between […]
Read more...The Fed’s unexpectedly large cut to the discount rate said loud and clear that its priority is domestic growth, not preserving the value of the depreciating dollar. Yet as we have pointed out, the dollar’s status is a tremendous asset for the US, not to be squandered. It gives us the ability to borrow in […]
Read more...In an interesting Brookings Institution paper (hat tip Greg Ip at the WSJ Economics Blog), former Federal Reserve economist Douglas Elmendorf looks at the question of whether monetary policy in the run-up to the credit contraction was too loose. However, he argues that the impact wasn’t great enough to have caused the housing bubble: Let […]
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