Yesterday was quite a ride for the stock market, and today might not be much better. Here’s Dr. Nouriel Roubini discussing the demise of Lehman Brothers:
Treasury Secretary Hank Paulson was less gloomy: [Hat tip L!]
The current credit crisis will not be resolved until the prolonged slump in housing comes to an end, he said.
"Until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we’re going to continue to have turmoil in financial markets," Paulson said.
Paulson, who was heavily involved in the decision last week for the government to take control of mortgage finance giants Fannie Mae and Freddie Mac, said if that action works as expected in helping to stabilize the mortgage markets, then housing should start to rebound.
"I’m not saying two or three months, but in months as opposed to … years," he said.
Since oversupply, more than available financing, is driving the direction of the housing market, no measure taken by the government will "stem the housing correction"- it will need to run it’s course. Paulson is wrong- it takes years to fix a problem like this.
World central bankers supplying the 170Billion demanded by banksters today. Remember yesterday FF went to 6 due to no cash available. 50 of the 170 demanded was full filled by the Fed. Result, liquidation of stocks, dow 500+ to raise cash.
i rates (10yr)have dropped 4.10 – 3.33= 77bibs but absolute rates are up 1/8.
Based on the 5-10 swap. 10 year is 88bips over 5year. It had been at 74-75 for months. This is what counts and the trend is for this spread to widen. The fastest way is for the 5 year to be dragged down by the 2year which is now deep below Fed funds target. The Fed must lower its rate below the 2 year for the world economies to survive. If this spread goes over 100 watch out!
DianaK, the 10 year was in the 3teens in June03 while the monthly average was about 3.65.(about 50 bps lower)
Supports my case that Mortgage rates with an monthly average of 5.23 where in the 4,s for about a week in 03.
“…Bears Stearns was essentially borderline illegal. There’s no fundamental reason why the US Taxpayer should be bailing out financial institutions. You have reckless lenders, reckless investors. You need punishment at this point.”
I could not agree more.
Anti-spam word: 1929
Keith-
Sadly, here’s the kind of "punishment" I expect we’ll continue to see:
How do they expect them to get by?
Twist-
What they’re being asked to bear is simply to great a burden. As a comassionate Christian, I feel I should step in a take their punishment upon myself.
Here’s a real gem from the article:
“Last week, Lockhart and Treasury Secretary Henry M. Paulson Jr. seized Fannie Mae and Freddie Mac and named new chief executives.
At that time, Paulson blamed the action mostly on the companies’ flawed business models and the housing downturn, and said the managements were responsible for neither.”
How is management not responsible for a flawed business model? Holy Crap, that’s just unbelievable. Company Performance (resulting from the model) is the only thing they’re responsible for!! Furthermore, it’s evident that the wide spread nature of this ‘business model’ (and I use the term VERY loosly) is at the very heart of the housing downturn.
I wonder why the Fed is not lowering the Reserve requirements, RR? That would be huge!