Letters to the Editor

Panic on Wall Street You've heard about the home-loan bust, but do you know your derivatives from your tranches? Read Salon's easy guide to understanding the current market freakout. By Andrew Leonard [2007-08-17]

• The Ol' One-Two Punch

  This is an excellent primer on Housing Busts and Hedge Fund Meltdowns by the New York Times:

  http://tinyurl.com/337j9t

  SEE ALSO:

  Mortgage Originated Credit Crunch May Just Be Beginning

  (Excerpt):

  Under the new market structure today, fixed interest fund managers are not in the mortgage lending business like the banks were… They don’t have to buy mortgages. They could just as soon hold treasuries… What if most of the world’s big fixed interest fund managers suddenly decide to go risk adverse, and sharply slow, or even stop purchasing mortgage securities[?] The entire global mortgage market would seize up… The whole structure of the [mortgage] security presumes there will be… buyers of the low quality tiers. When [that] end of the market dries up, you can’t sell the higher quality tiers either. So the entire market just shuts down. (MORE)

  http://usmarket.seekingalpha.com/article/44233

  As far as I can tell (as a total layman), we are only at the beginning of this disaster. With the one-two punch of tightnening credit and impending ARM rate resets, more homeowners will go into default -- and I'm not talkin' subprime types, either. There is going to be a cascading effect of defaults, negative market reaction, a further tightening of credit availability resulting in fewer people buying (or refinancing) homes, in turn resulting in an ever-increasing glut of unsold homes and defaults, further exacerbating the situation and, on top of that, a slowing of consumer spending as this all comes unraveled.

  If someone out there who is much more well-versed than I in the world of economics can disabuse me of such notions, please do.

  -- Scorpio69er
  [Read Scorpio69er's other letters]
  Permalink Flag Thursday, August 16, 2007 07:31 PM
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