Monday, Apr 30, 2007
Damage control Starting....
The Market Oracle: US Housing Bubble Meltdown: "Is it too late to get out"?
Great article detailing the panic now being experienced by the financial lenders in the US over subprime debacle. "Citigroup and Bank of America" forming a $1bn dollar fund to help bail out lenders?! How scared must they be? Alt-A is aparently a $1 trillion dollar time-bomb too!
How they will keep this illusion up will be interesting..
Posted by layers @ 10:08 PM (42 views) Add Comment
4 Comments
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1. Whiteknight said...
Again, bailout is a moral hazard.
Bailout = continued dumb behaviour.
Of course any fund formed to bail out smaller lenders now will be overwhelmed and eventually swamped by the avalanche of defaults that will be arriving with us shortly, so is a largely irrelevant short term proposition. It will probably be too small a fund by the time it is available.
2. dobber said...
Excellent post.
A really well writtten article, and it's only just got started in the USA!!!!
Heebner: “The Greatest Price Decline in Housing since the Great Depression” (Bloomberg News interview)
“The real wave of pain and foreclosures is just beginning….subprimes and Alt-A are both in trouble. A lot of these will go into default. The reason is, that the people who took these out never really intended to fully service the mortgage — they were counting on rising home prices so they could sign on the dotted line without showing what their income was and then 2 years later flip into another junk mortgage and get a big profit out of the house with putting anything down…
“There's a $1.5 trillion in subprimes and $1 trillion in Alt-A the catalyst will be declining house prices which is already underway. But as we get a large amount of these $2.5 trillion mortgages go into default, we'll see foreclosed houses dumped on an already weak market where homebuilders are already struggling to sell there houses. The price declines which have started will continue and may even accelerate in some of the hotter markets. I would expect that housing prices in “2007 will decline 20% in a lot of markets”.
3. uncle tom said...
The element that spoils the optimists' hopes is the little matter of equity withdrawal - people extracting money from their houses as they rise in value and supporting the economy by spending it. This has had a dramatic economic impact on both sides of the pond.
The drying up of equity withdrawal is very much a lagging consequence of house prices failing to rise - typically cutting in a couple of years after the event. For the US, the consequences will probably start to become noticeable later this year. Those consequences will include a marked drop in consumer spending, and a rise in unemployment.
Many of the sub prime borrowers who are still keeping up their payments have jobs that are very vulnerable to this kind of downturn...
~~~
Watch the US$ - it's looking very vulnerable at the moment. There are far too many dollars and treasuries owned by people for whom the greenback is not their national currency, and are seeing their assets steadily depreciate in value. If Ben Bernanke even hints at a Fed rate cut, it could spark a rapid exodus from the currency - but don't look at the Pound or euro rate, as they will tend to get dragged along with it (to some extent).
Currencies like the Zloty, Won and Baht may well become much more valuable.
4. sold 2 rent 1 said...
UT,
I thought Poland had a time bomb with 50% of mortgages taken out in Swiss Francs.
Is the Zloty such a good bet?