“The process of inventory adjustment has just started," Alan Greenspan said this week, while in London on his book tour, “and we have a long way to go before residential housing and mortgage markets stabilize in the U.S.”
Greenspan then peered down at his “chance-of-recession-o-meter” and reported it had risen from “slightly more than 1 in 3” to “less than 50-50.”
The downward path of home prices “will dominate Fed policy over the next several years,” said Bill Gross yesterday in his latest missive, “as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public.”
“If the Fed was so slow to grasp the role that subprime mortgages played in the housing boom and bust,” Gross continued, one has to ask, “do the Fed and the Treasury of today totally comprehend what happens when the nonbanking private system suddenly stops flooding the market with credit?”
We’ll soon find out...
Ironically, much of the housing market mess could have been avoided entirely. A new study from Fannie Mae reveals 50% of the subprime mortgages sold in recent years were purchased by borrowers who could have qualified for “prime” mortgages.
Sure, borrowers would have had to pay higher monthly payments earlier. But they also would have avoided the tsunami of resets that is rifling through the industry now. Among the culprits: mortgage brokers heavily incentivized to steer borrowers with good credit into ARMs that pay higher fees over the long term. Caveat emptor, people.
Deutsche Bank took a page from Citi’s playbook this morning and announced that they too will pay billions for bad subprime bets in the third quarter. The German banking giant will take charges up to $3.1 billion on leveraged loans, structured credit products, and mortgage-backed securities.
Both Morgan Stanley and Credit Suisse announced layoffs within their home loan divisions. Together, the firms will fire about 1,000 employees.
Greenspan then peered down at his “chance-of-recession-o-meter” and reported it had risen from “slightly more than 1 in 3” to “less than 50-50.”
The downward path of home prices “will dominate Fed policy over the next several years,” said Bill Gross yesterday in his latest missive, “as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public.”
“If the Fed was so slow to grasp the role that subprime mortgages played in the housing boom and bust,” Gross continued, one has to ask, “do the Fed and the Treasury of today totally comprehend what happens when the nonbanking private system suddenly stops flooding the market with credit?”
We’ll soon find out...
Ironically, much of the housing market mess could have been avoided entirely. A new study from Fannie Mae reveals 50% of the subprime mortgages sold in recent years were purchased by borrowers who could have qualified for “prime” mortgages.
Sure, borrowers would have had to pay higher monthly payments earlier. But they also would have avoided the tsunami of resets that is rifling through the industry now. Among the culprits: mortgage brokers heavily incentivized to steer borrowers with good credit into ARMs that pay higher fees over the long term. Caveat emptor, people.
Deutsche Bank took a page from Citi’s playbook this morning and announced that they too will pay billions for bad subprime bets in the third quarter. The German banking giant will take charges up to $3.1 billion on leveraged loans, structured credit products, and mortgage-backed securities.
Both Morgan Stanley and Credit Suisse announced layoffs within their home loan divisions. Together, the firms will fire about 1,000 employees.
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