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Non-Tech : Bill Wexler's Trading Cabana -- Ignore unavailable to you. Want to Upgrade?

To: Bill Wexler who wrote (1676)	2/11/2007 11:36:21 AM
From: peter michaelson	Read Replies (1) \| Respond to of 6370

What is the domino effect, please?

To: Bill Wexler who wrote (1676)	2/11/2007 3:58:31 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 6370

I remember that you mentioned that some excesses are undone particularly with housing prices in some regions. First the scenario is still inflationary in prices, wages and factor costs meaning that the average well funded borrower stands to gain over time particulary if those loans have interest rates not higher than todays fed fund rate. His ability to serve loans is rather improved by the escalating inflation. The fed policy is still "accomodative" as they do nothing for the exterior value of the dollar but rather let the market cope with the excess dollar supply (as evidenced when they decided not to proceed with rate hikes last year). They appearently didn't even think about strangulating the money supply knowing the dangers of a restrictive policy. But here we talk about subprime, money to people without adequate equity; this is a bet on the economic success and discipline of those folks. Those loans need to be combined with stagnating or even declining house prices; this is a little bit different to 1998 when housing was not nearly that tight as it is in 2005 onwards. Hot money which leaves the sector and hurt people who overpaid for both housing and the loan tied to it... What do you think? Are normal mortgages insulated or is it a general problem that even conforming loans are given to people on mostly inflated paper equity (read: valuations of their houses). For now some worse than average lenders suffer and as it seems investors rather pile into more safe bonds be it CMBS or agencies. So it is rather redistribution of wealth an effect home to every inflationary scenario. Perhaps that is what the architects of a soft landing believe. If only a small fraction of people suffers but the average credit quality does not suffer then the only net loser will be the purchaser of fixed bonds through inflation and comparably low interest rates... A side bet. If CFC also has a problem then it will not be bought. Not at these level.