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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: philv who wrote (37920)8/5/2005 4:03:43 PM
From: GST  Read Replies (1) of 110194
 
Japan lowered interest rates to nil and still nobody could qualify for new loans. When everybody is underwater, there is no equity on which to structure a deal. In this environment, real estate plunged as much as 80%. Lets assume we get away with a 30-50% haircut. What will be the impact be as risk is priced into mortgage rates? That is the 64 dollar question. For "risky" loans -- and that includes a remarkably high percentage of todays loans -- a much, much higher risk premium is likely to be applied. This is compounded by the macro economic picture and the weakness of the dollar. Government borrowing is likely to soar out of sight.
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