-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: August 10, 2007 1:25:45 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: State Capitalism/Socialism: The Visible vs "Invisible
Hand" of the "Free Market"
The Fed has to pump $50 billion a DAY into brokerages to keep the
stock market from crashing.
At that rate, in 2 weeks the bailout will exceed the cost of 4
years of war in Iraq and Afghanistan!
Mortgage meltdown contagion
A grim forecast has economists more pessimistic
about the collapse spreading to the rest of the economy
By Les Christie, CNNMoney.com staff writer
August 10 2007: 1:52 PM EDT
http://money.cnn.com/2007/08/10/real_estate/
mortgage_meltdown_crushing_other_markets/index.htm?
postversion=2007081011
NEW YORK (CNNMoney.com) -- The outlook for the housing market looks
even bleaker than it did a week ago. Last Friday we reported that
foreclosures were skyrocketing, home prices falling and recovery
forecasts were being scaled back.
And now this week, the mortgage meltdown spread to the financial
markets with ebola-like speed, sparking fears that tighter credit
will have a broader impact on consumers, markets and the economy.
The U.S. government continues to downplay the danger. When the
Federal Reserve met this week, the central bank said that inflation
is the greatest threat to the economy, not the mortgage crisis.
Yet, Countrywide Financial, the nation's largest mortgage lender by
volume, reported Thursday that "unprecedented disruptions" in the
mortgage market were forcing it to cut way back on the number of
loans it was securitizing and selling in the secondary markets.
In the financial markets, credit, including corporate bonds, has
become harder to get. Mark Zandi, chief economist of Moody's
Economy.com, had been loath to call it a "credit crunch." Instead,
he called it a "liquidity squeeze," that had spread to corporate
bond and other financial markets. The difference: In a crunch,
nobody can get a loan; in a squeeze, only the riskier borrowers are
cut out.
"I think it's still a liquidity squeeze," Zandi now says, "but it
has elements of a credit crunch, affecting much of the mortgage
market."
It has yet to severely disrupt the prime loan market, however,
according to Zandi. The situation will continue until financial
institutions revalue their mortgage-backed securities downward to
what they're actually worth.
"They're faced with redemptions and margin calls, and they have to
[over]value their securities in order to sell them at all," said
Zandi.
Peter Schiff, president of Euro Pacific Capital Inc. and author of
"Crash Proof: How to Profit from the Coming Economic Collapse," has
said the problem goes way beyond subprime.
"It's a mortgage problem," he said. "Subprime is like a little leak
where the underlying problem is the integrity of the dam itself.
Most of the mortgages taken out during the past few years will fail."
Schiff expects huge losses in the housing market, with home prices
falling [50%] in some areas, which he said has to affect the
overall economy. He said he'd been expecting the financial markets
to start taking hits long before this week's drop.
"This week is making more sense," he said. "The economy is a basket
case."
Most economists are nowhere near as pessimistic. Standard and
Poor's chief economist, David Wyss, and Moody's Economy.com's chief
economist, Mark Zandi, have forecast 8 percent price drops in the
housing market, peak to trough.
Zandi does not believe a consumer spending slowdown is enough to
trigger a recession, but he hasn't counted it out. What it will do,
he said, is "ensure that the economy grows at a pace below its
potential. I wouldn't dismiss the possibility of a recession. I put
the possibility at one in five."
Ken Goldstein, an economist for the Conference Board, has said he
doesn't believe the subprime contagion is enough to send the
economy off-track, and that "the idea that average consumers are
quaking over the prospects of losing their homes or much of their
equity is wrong."
The mortgage market adds up to about $10 trillion, according to
Goldstein, with about 10 percent to 15 percent of that in subprime.
Of that, some 15 percent or so is imperiled, he said.
"It's big, but not the tipping point that will bring the whole
housing market down."
But on Friday Goldstein did concede that "The panic and concern
over credit is even spreading across the pond to European markets."
On Friday the European Central Bank (ECB) pumped extra cash into
the system for a second day in a row, as a means of calming nervous
traders. The ECB added $83 billion in liquidity Friday.
The Federal Reserve followed suit, adding $19 billion in temporary
reserves. The move was the biggest single temporary open market
operation in four years, the New York Federal Reserve said,
according to Reuters.
The Fed moved Thursday to add an extra $24 billion in temporary
reserves to the U.S. banking system. But that wasn’t enough to
comfort Wall Street, which suffered its second-worst decline of the
year that day. The Federal Reserve Bank of New York, which carries
out the central bank’s market operation, moved to add another $19
billion in temporary reserves Friday morning. It pumped in yet
another $16 billion in reserves a couple of hours later, then $3
billion more in the afternoon. (http://business.bostonherald.com/
businessNews/view.bg?articleid=1016462)
Subprime problems have not, so far, slowed consumption down much.
The pace of consumer spending is still brisk, although growth
slowed in June. Steady job growth and low unemployment (between
4.4 percent and 4.6 percent since September) have kept it that way.
Consumers don't really care much about changes in housing prices
or, for that matter, in the stock market, according to Goldstein.
"If you really want to screw up consumer confidence," he said, "go
for the jugular -- the labor market."
As long as employment stays strong and workers' wages grow
substantially (4 percent annually, according to Goldstein),
confidence -- and spending -- will remain high and the economy will
chug along.
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