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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: glenn_a who wrote (90873)1/28/2008 8:43:40 AM
From: Keith Feral  Read Replies (1) of 110194
 
Interest rates and leverage are two different subjects. Banks were pumping out record levels of mortgages at obscene rates that nobody could afford. We still have a negative credit spread from FED funds to every point along the Treasury curve, which is a negative monetary policy.

The traditional instruments to excess capital have changed. Banks should stop lending their excess capital to other banks which go out and waste the capital by making stupid loans that put people into homes they can't afford.

I don't begrudge any of the shorts their desire to make money from corrections. However, the change in the banking system is being driven by lower interest rates and the deleveraging of high interest rate ARM loans that could not find buyers. All the mortgage REIT's were writing mortgages that nobody wanted. For all practical purposes, that part of the mortgage market no longer exists. It was wiped out by high interest rates.

I agree there are 2 different schools of thought on interest rates. There are people that want low interest rates and low taxes to stimulate growth for a market economy. On the other hand, there are intellectuals and shorts that believe high interest rates or high taxes can protect the system from excessive behavior or strong economic growth.

Anyways, I'll go along with every forecast for interest rates put out by every fixed income expert in the world and let shorts like Doug Nolan say that this latest round of FED easing is wrong.
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