Quote of the Day
“To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy.” – Federal Reserve Chairman Benjamin Bernanke, in a paper called “Essays on the Great Depression" that he wrote as a graduate student at MIT, 30 years ago.
Macro Impact, And Will The Housing Slump Cause A Recession?
A Bear's Questions: Floyd Norris "NY Times: David A. Rosenberg, a Merrill Lynch economist [asks]: "If the first 7% downleg in home prices could manage to trigger... Almost $100 billion in write-downs in the banking sector; a 65 percent year-over-year surge in foreclosures; the highest residential real estate loan delinquency rate in 20 years; and, a 20% plunge in S&P financials… then what, pray tell, will the next 20-30% have in store?" I think this is dead on. There are tons of people out there catching falling knives."
Builders' Confidence Edges Up From Record Low "The National Association of Home Builders/Well Fargo index had a 19 reading in January, up slightly from the downwardly revised December reading of 18, a record low. The index is based upon three subindexes that measure their view of current market conditions, outlook for six months down the road and the level of buyer traffic. Builders' view of the market for single family homes six months from now was responsible for most of the index's narrow gain. The reading rose to 28 from 26, the second straight month of a two-point gain in that measure."
Loan Crunch Starts To Weigh On Everyone "An international credit crunch is upon us. The subprime mortgage crisis spawned it, but everything from home equity loans to business lines of credit may be touched before it’s over... Ten years ago, consumer debt in the U.S., excluding home mortgages, totaled $1.24 trillion. Today, Americans have roughly doubled the amount of nonmortgage debt they carry, to $2.5T, or $8,300 for every man, woman and child in the country... Federal Reserve: A typical homeowner’s debt burden including mortgages and other types of credit now stands at about 18% of disposable income, up from under 14% in 1980."
Market is Reading Too Much Into IBM's Positive Result "Financial Times: “Several other pockets of the credit market are also vulnerable. [The] credit card segment [is] similar in size to the subprime market... Credit card master trusts... are pools of credit card receivables put together by credit card companies and sold to investors. Associated Press December survey: The value of accounts at least 30 days late on payment jumped 26% to $17 billion late last year... Credit consultancy RiskMetrics says delinquencies are rising at a faster clip for the 15 credit master trusts it serviced. More borrowers are failing to make payments on time. And some are... defaulting altogether."
Will Financial Writedowns Impact U.S Government Revenues? "I believe that these writedowns will have an enormous impact in the corporate tax revenue being collected by the U.S government. I have been told of news stories reporting very large loss carrybacks for some american companies that have already produced enormous tax refunds of previously paid corporate taxes. Should we not be concerned with the potential impact that this multi-billion loss to American companies will have on the U.S treasury? I [think] these losses will reduce corporate revenue and thus corporate income taxes. If the losses to American companies have exceeded $100 billion, doesn't this make the treasury loss in the neighborhood of 35B?"
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