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Origins of the credit boom

The Wall Street Journal's Jon Hilsenrath discusses the origins of the credit boom and some lessons to be learned from its demise.

Posted at 08:57 PM | TrackBack

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FHA Could Help Struggling Homeowners

From the WSJ:

The FHA is getting renewed attention in plans to help struggling homeowners. The following are some of the ideas being discussed:

*The FHA would help low and middle income homeowners avoid foreclosure.
*The FHA could offer refinancing options to homeowners, including those who aren't yet in defualt, but who risk falling behind in payments that jump when rates are reset.

For this to happen, Congress must reform the FHA and give the authority more tools to assist homeowners. The FHA is currently constrained from dong more now becuase of limits on the size of loans it can back and some requirements that borrowers must meet.

Senate banking chairman Christopher Dodd said recently that FHA reform will be among his top priorities.

Posted at 06:23 PM | TrackBack

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Jim Cramer's Meltdown

With over 1 million YouTube views, Jim Cramer's reaction to the sudden panic that gripped credit markets last week was, to say the least. passionate:

Posted at 11:24 PM | TrackBack

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Unch.

The Fed kept its key interest rate and policy focus unchanged. The reaction on Wall Street and among Fed analysts was varied.

Key quotes from the Fed statement:

"financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing."

Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

On Fed policy:

“I think this means that the Fed isn’t preparing the market for a rate cut anytime soon,” said Tom Gallagher, a Fed analyst with the ISI Group in Washington, a financial research firm. “On the other hand, they set up a statement that they could use to justify a rate cut if things deteriorate faster than they now expect.”

On Bernake:

“Ben Bernanke is more standoffish,” said Drew Matus, an economist with Lehman Brothers. “He’s the guy sitting there watching the kids in the playground. And if there’s a fight, he’s going to stay out of it unless somebody’s going to get hurt. Greenspan was more like a doting parent.”

Click here for the entire text of the statement by the Fed Committee..

Posted at 01:09 PM | TrackBack

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The Credit Crunch

(Source: Economist)

The August 4th - 10th issue of the Economist is one of the better magazine covers I've seen in awhile - in any magazine category. The art direction and layout is always top notch but I think the current issue is particularly strong with a terrific cover illustration. Pick up a paper copy for the full visual impact. Despite what the geeks tell you - paper is still pretty good technology in my book. (re: geek. see definition #1)

Scene: Full Metal Jacket, bath room scene.

American Home Mortgage, sits down on a toilet, puts the barrel of a M16 assault rifle into his mouth and pulls the trigger.

Close up: Blood and grey matter splattering on white tile. Gun powder smoke floats into the frame and twists.

Backstory:
“No realistic alternative” For past several weeks, the credit markets have ganged up on and bullied American Home Mortgage to the inevitable breaking point. Structured like a REIT, AMH was America’s 13th largest lender and despite many business and operational proficiencies were forced into committing seppuku. The reason for this is simple: AMH was no longer were worthy of being given credit – not even the no documentation, no income verifying, no credit check variety of a subprime loan.

Eat or be eaten:

As terrible as it is to hear that 7,000 AMH employees will loose their jobs, when companies like AMH are swallowed up by market forces – the contrarian mind wants to know what the wake up call means and what new business opportunities now exist?

For a deeper perspective than I'm capable of providing, check out the following articles:

Economist: “A good time for a squeeze”
New York Times: “Without Cash, Instant Profits Were No Help”
New York Times: “Mortgage Lender Says It Will Close”

Posted at 06:10 PM | TrackBack

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