I’m hardly alone in being fascinated by the current financial tumult; all these mortgage-backed financial instruments, and nobody really knows how much they’re worth. If there’s good news, it’s that the immediate short-term bloodletting will mostly involve high-roller investors, hedge-fund customers, those best able to afford it. Will it spill over into the broader economy? My personal bet is probably not. But anyhow, I don’t have anything new to say on the subject. I think Bram Cohen does, though.
Comment feed for ongoing:
From: GuruJ (Aug 27 2007, at 23:49)
Tim,
I know you have an interest in Australia, so you might be interested to know that here mum-and-dad investors have been able to invest in these CDOs. (That's an unusual state of affairs, as you say, these are mainly purchased by large institutions.)
Although I haven't heard of any real horror stories yet, if the investor didn't have a diversified portfolio they could lose 70-80% of their principal.
As such, it's quite possible that someone in the US who takes out a dodgy home loan will end up bankrupting an Aussie -- without the two parties ever knowing the other side existed.
Strange world we live in!
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From: Dalibor Topic (Aug 28 2007, at 01:57)
People in charge of the printing presses will as usual print more money to cover the losses/'liquidity needs' of the banks.
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From: Obie (Aug 28 2007, at 05:47)
I can tell you that it's making it really hard for self-employed people to get mortgages (even if they're otherwise well-qualified.)
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From: Seth Gordon (Aug 28 2007, at 06:46)
Mark Kleiman has some interesting comments here: http://www.samefacts.com/archives/macroeconomic_policy_/2007/08/revenge.php
If I did business in Canada I would wonder what effect this mishegas would have on the US/Canadian dollar exchange rate.
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From: Erik Weibust (Aug 28 2007, at 11:14)
I'm a Sr Java Developer working at Countrywide. I, obviously, am very interested in how this mortgage crisis is going to work out. I'm guessing what we'll have in the next year or so is just a handful of gigantic lenders, after they've snatched up all the "small potatoes" that had too much business in sub-prime loans.
Erik
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From: Mark Kelly (Aug 28 2007, at 13:00)
I was under the impression that the crisis is caused by the foreclosure of many loans. I doubt that it is the fat cats who are losing their homes.
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From: Al Lang (Aug 28 2007, at 14:59)
The good news, which most comfortably not-poor commentators have missed, is that all this complicated financial engineering has enabled a truly vast number of people who could never otherwise have obtained mortgages to buy their own home.
Even a "sub-prime" default rate as high as 20% means the other 80% of borrowers -- who by definition could never have borrowed to buy a home any other way -- are successfully paying their mortgages.
That's a good thing.
It would be nice if you all could consider some of the upsides as well as lamenting.
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From: walter (Aug 28 2007, at 19:14)
'many homeowners owe more on their houses than the houses are worth, and won't be able to cover the difference from other sources.' .. the folks who received the sub-prime homes were indeed able to buy homes they otherwise would not have been able to as they had; bad credit, no income to support normal mortgages, and probably worked at a non full time position. so what? after the low - payments stage - 2 yrs - they get hit with reality and cannot afford the payments. foreclosures abound, and then people snap up homes at bargain prices,... and then the whole cycle was to kick in again. well the chickens have come home to roost. there ain't no free lunches after all.
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