Markets seem to like the idea of the two massive US mortgage lenders, Fannie Mae and Freddie Mac, being bailed out by the US government. Markets will benefit, in the short term. $ 200 billion dollars to support borrowers is attractive. But the medium and long term consequences are unlikely to be benign. This will …
Continue reading Is bailing out Fannie and Freddie a good thing?
The recently breaking news story about leading financial institutions selling auction rate securities with misleading marketing shows that neither financial institutions, nor investors have changed their behaviour since the financial meltdown caused by excessive credit and the sub-prime implosion. Several leading financial institutions have been fined and forced to repay investors their investments in auction …
Continue reading Auction rate securities scandal shows we’ve learned nothing from the sub-prime mess.
As always, some weather downturns better than others, and the credit crunch has benefited those able to take advantage of it: those with cash, those who provide value and those who said it was coming. It is unfortunate that at the top of that list are the rich. In other words, the rich have got …
Continue reading Winners from the credit crunch.
A succinct summary of the impact of the dislocation of financial markets so far is presented by the BBC here. It summarises the numbers; the losses to banks, homeowners, investors and policymakers. Unfortunately what is also clear is that none of the leaders in these areas have presented a way out. They talk about rebuilding …
Continue reading The financial meltdown so far …
This report from the BBC shows that the more wealthy borrowers who are able to service their mortgages are choosing to default because the negative equity is so large. For example, a borrower might face a 40% drop in marketable value and increasing interest rates, so they choose to walk away from the mortgage suffering …
Continue reading Voluntary defaults could solve the US financial problem …
US Treasury Secretary thinks that it is the “end of the credit crunch“. It is likely that he said “peak” rather than “end”, or meant that anyway. And take that message with caution: yes this may be the peak of the unwinding of the US sub-prime mortgage mess, but unwinding will continue till year end. …
Continue reading End of credit crunch …?
The US central bank lowered rates to 3% from 3.5% after a two-day meeting. Last week, the Fed slashed the cost of borrowing by the largest amount in 25 years in a shock move to calm tumbling global stock markets. If you consider the double reduction over 9 days as one event, that’s a 1.25% …
Continue reading US rates down again
Yesterday the US Federal Reserve cut its base rate from 4.5% to 4.25% and the markets slumped. They had expected a bigger cut. While the rate reductions may ease the pain of interest payments, they do not address the fundamental problem of overconsumption fuelled by credit (further analysis here and here). In fact the reductions …
Continue reading Cutting the US interest rates is still not the answer
The Fed lowered the federal funds rate by 0.25% to 4.5%, as the markets expected and desired. The vote was not quite unanimous with one governor voting to hold. The discount rate was also reduced by 0.25% to 5%. The reduction in the fed funds rate was almost required given the anxiety of the market …
Continue reading US interest rates eased again, of course …
Although this question crossed my mind in the middle of October, it kept recurring in a range of areas. For those seeking system change it is core to the philosophical question of whether humanity can adapt to systems based on love and sharing instead of greed and fear. While that thought may not bear much …
Continue reading Will truth win over power soon enough?
