Subprime problem accelerating at a precipitous pace
It looks like we are in for a nasty economic storm as the greed driven subprime loan bubble bursts. We are about to experience the unintended consequences of unregulated, transnational capitalism, without the tools to regulate it knowledgeably or to understand its emergent vulnerabilities.
Bush and the Republicans have thrived upon a culture of greed. We apparently have $600 trillion in real-estate loans, of which on the order of 20% are subprime of dubious quality that, via the magic of the market, have been stripped of their reserves. This is why the US, Germans, French, Australians, Japanese etc. are all pumping money into the markets in an attempt to stabilize them and prevent a melt down [depression].
For more details on this bursting bubble, see “Bankers Report Interbank Lending Shut For Two Hours Over German Bank Crisis” and the July 2007 letter to investors from Hayman Capital Partners. PDF is attached below.
On the other hand, today Bloomberg reports: ECB Adds Cash for Third Day, Says Market Normalizing (Update8)
Where, we should ask, is the leadership on this issue from the politicians who would be elected President in 2008? They appear to be missingin action. I note that a major global financial crash might be one very ugly way to end the war in Iraq.
permalink | Jock Gill | Economic Justice, Economy, Election
The Clinton Campaign has a position:
http://www.hillaryclinton.com/feature/mortgage/?sc=8
For more on this, originally published in the NY Times, see:
http://delong.typepad.com/sdj/2007/08/paul-krugman-re.html
Paul Krugman Recommends Floyd Norris Today
Floyd Norris writes:
A New Kind of Bank Run Tests Old Safeguards: A few generations ago, savers responded to financial panics with runs on banks, and even healthy institutions could fail if they could not raise enough cash quickly enough. For a long time, that all seemed to be safely relegated to the past. But now the runs are back — and this time the targets are not banks but the securities that have replaced them as the prime generators of credit in the new financial system.
— snip
August 17, 2007
OP-ED COLUMNIST
Workouts, Not Bailouts
By PAUL KRUGMAN
In April, Henry Paulson, the Treasury secretary, declared that all the signs he saw indicated that the housing market was “at or near the bottom.” Earlier this month he was still insisting that problems caused by the meltdown in the market for subprime mortgages were “largely contained.”
But the time for denial is past.
According to data released yesterday, both housing starts and applications for building permits have fallen to their lowest levels in a decade, showing that home construction is still in free fall. And if historical relationships are any guide, home prices are still way too high. The housing slump will probably be with us for years, not months.
Meanwhile, it’s becoming clear that the mortgage problem is anything but contained. For one thing, it’s not confined to subprime mortgages, which are loans to people who don’t satisfy the standard financial criteria. There are also growing problems in so-called Alt-A mortgages (don’t ask), which are another 20 percent of the mortgage market. Problems are starting to appear in prime loans, too — all of which is what you would expect given the depth of the housing slump.
Many on Wall Street are clamoring for a bailout — for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust — it would be saving bad actors from the consequences of their misdeeds.
—- see NY Times for full text, subscription may be required.
Or see: http://economistsview.typepad.com/economistsview/2007/08/paul-krugman-wo.html
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