Posted on 08/04/2007 10:36:23 AM PDT by ex-Texan
I agree that the sub-prime mess (and especially the “no-doc” and “stated income” type of loans) have a high correlation with areas of illegal immigration.
But that isn’t a complete explanation of who took out these loans. Plenty of US citizens were lining up to take the ultra-low teaser rate mortgages with little to no documentation necessary.
In 2005 and 2006, the mortgage industry was giving money away. By the truckload.
I’m a firm believer that the bankers who wrote loans to bad borrowers should get what they deserve: defaults and foreclosures. That’ll teach them to not write loans to people without documentation, either legal or financial.
I would argue that the funds rate has basically been decoupled from the yield curve in this latest cycle. There’s far too much liquidity from non-Fed sources sloshing around the world.
Consider this: please look at a graph of 10-year Treasury rates over the last eight weeks. Look at how, as this sub-prime/hedge fund/margin call mess has exploded in the markets, the 10-year T has gone from about 5.25% down to under 4.8%.
Right there is a nice indication, IMO, of how much money is sloshing around the markets, completely beyond the control of the Fed. The Fed’s funds rate is still right where it was eight weeks ago, but the long end of the curve is suddenly going down, down, down as these funds “flee to quality” and cause a nearly 50-bp move in the 10-year rate.
The need for the Fed to stand pat actually has less to do with the actual rate (because, really, we could debate what the funds rate should be one way or the other until cows jump over the moon) and much more to do with investor confidence. I argue that if the Fed were to start playing with rates at all just now, investors in US debt markets (esp. international investors, who have been taking a bath on the declining value of the US dollar) would flee, because they would think that the Fed sees the recent market gyrations as being “so serious that the Fed needs to step in.”
One of the big problems here is that no one has a firm grip on just what level of exposure is out there in these CDO’s/CDO-squareds. If the Fed gives the debt markets any reason at all to think that the Fed is worried about just how far the “toxic waste” has spread, then we’re gonna see things get real ugly.
There’s a big psych component in the recent market actions, and that’s what I’m addressing.
Cramer? More coffee!
How many asses do you have?
The market is to low for th long term good of th economy.
It grew back each time. Seriously, I made money sometimes and usually lost it when I began to think I was omniscient. I doubled my capital in commodities in three months; the next year I got arrogant and lost it all. Doubled my money in California real estate...re-leveraged and lost all of it plus $500K during the next downturn. Five years ago I bought a company for $450K and ended up in Chapter 7. Two years ago I bought another company in the same industry for ZERO dollars and am running it at a profit. Arrogance and overconfidence are my weak points. However, that same confidence is what makes me an entrepreneur.
That's pretty funny.
I have one more mortgage payment and my house is paid for!
I feel sorry for a lot of my friends with interest-only loans.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
You're arrogant, you want to maximize economic damage, and you think you are smarter than the markets. All you need is a PhD in economics and you could lead the Federal Reserve.
Sorry, but just because some home buyers were stupid, is no reason to tinker with interest rates with the potential of over heating the economy causing inflation. Now if the economic indicators call for a reduction, then by all means...
And you want to lower rates to keep your gravy train running despite the long term damage to this country’s economy. Banks made tons of loans to people who had no earthly business so much as being loaned a pen to fill out the app. Banks stood to reep the profits, no let them suffer the losses. It is time for sanity to return to this and part of that is letting the correction happen, the longer we try to stop it with more cheap money the worse it will be.
Now you're contradicting yourself. You said the correction is inevitable and I agree at this point. Lowering rates won't change that, but it will limit damage to the rest of the economy and reduce unnecessary human suffering.
Sorry, but you're the idiot. The Federal Reserve has already tinkered with interest rates and held them too high for well over a year.
BTW, there is no such thing as economic overheating that causes inflation. It's an excuse the Fed uses to manipulate the economy.
My dad had his own business, I saw what it took out of him, i don't want that. More power to you!
The funds rate has still had tremendous influence on the short end of the curve.
Consider this: please look at a graph of 10-year Treasury rates over the last eight weeks. Look at how, as this sub-prime/hedge fund/margin call mess has exploded in the markets, the 10-year T has gone from about 5.25% down to under 4.8%.
I watch the 10 year almost everyday. Money has gone into government bonds the past few weeks as a safe haven. The money has come from the sales of stocks and lower quality bonds, not money sloshing around. The 10 year bond is more attractive because it is more influenced by the now greater likelihood of a rate cut.
The need for the Fed to stand pat actually has less to do with the actual rate (because, really, we could debate what the funds rate should be one way or the other until cows jump over the moon) and much more to do with investor confidence. I argue that if the Fed were to start playing with rates at all just now, investors in US debt markets (esp. international investors, who have been taking a bath on the declining value of the US dollar) would flee, because they would think that the Fed sees the recent market gyrations as being “so serious that the Fed needs to step in.”
What you're talking about is the psychology of the ignorant, speculative, and dramatic press. Real investors with real money would love to have rates determined by the market rather than an arrogant PhD who makes the same salary regardless of his performance, and will never be held accountable for his mistakes.
No lower rates will only make it worse. Inflation is on the rise adn has to be checked, that is one of the main reasons I think we need at least a 1/2 point increased.
The only way to eliminate inflation is to cut back government spending, and to encourage economic growth through the supply side. The Federal Reserve's credit cycle method, based on the incorrect theory that economic growth and full employment cause inflation, doesn't work. It still allows prices to double every 20 to 25 years.
The real reason you want the Fed to hike rates more is to increase human suffering so that you may benefit.
No want rates up to stop inflation return the economy to an even keel befor eit gets even worse.
That's a popular notion and might even be right.
On the other hand: A decent sized rate cut might already be priced in to the currency markets.
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