No Bottom Yet in Housing, Paulson Says

The US "hasn't hit bottom yet in housing," Henry Paulson said Tuesday but noted that the country had enough economic strength to "grow through" the situation. Speaking at a conference in New Delhi, the Treasury Secretary said the administration was studying what went wrong with the subprime market so it could make policy adjustments "so this doesn't happen again." In wake of the currency's continued weakness and record lows, Paulson also said he was "strongly committed to a strong dollar." He noted that "major parts of the capital markets are performing well," but said markets for highly structured debt, asset-backed paper and high-yielding debt were taking longer to "reprice" risk. Former Federal Reserve chief Alan Greenspan appeared to agree, telling a group of hedge fund managers and investors Monday that markets have decided subprime securitization "is much too risky" and that those types of investment weren't likely to make a comeback any time soon. The Fed is widely expected to cut the benchmark interest rate a quarter-point to 4.5% on Wednesday.

Sources: Reuters I, II, Bloomberg
Commentary: Housing Will Not Bottom Anytime Soon • The Economist On the 'Limitations' of Central Bankers

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Malkiel:]

Actually, the housing bubble was an excellent laboratory to check all the assumptions of the radical free-market antigovernment conservatives and their Republican operatives in Congress (up to 2006). You had a wide-open market with no regulation of lending practices or consumer protection regulations, just as the freewheelers like it. You had free-flowing capital and low interest rates fueling it all, just as they had demanded. And now you have the part of the macroeconomic curve where prices must adjust downward, with lots of attendant fallout like criminal manipulations of the market, homelessness, and social problems, but their theory has no chapters to cover the messiness of the process: in this form of economics transactions are conducted in the ether by entities that never grow old, starve, die, or commit crimes against the market players. They grasp for any answer but the obvious, which is that the mechanism didn't have enough rules to govern the conduct of the players and that government will have to be the maker and enforcer of the rules. Easy credit didn't cause this crisis, lack of regulation of mortgage brokers, lack of lending standards, and lack of accounting oversight caused this crisis. The free market game only works when the referees are on the field...

2007 Oct 30 12:18 PM