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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: glenn_a who wrote (90873)	1/27/2008 4:35:23 PM
From: benwood	Read Replies (1) \| Respond to of 110194

I appreciate your lucid and thoughtful posts today. I also don't agree that rising interest rates caused the problem. Something had to occur to end the heroin party. Without rising rates, it would have persisted for another few months before blowing up, at best (with even greater damage, I might add). I've read Doug Noland off and on for more than nine years. I believe nothing would have given him greater joy than the adoption of sound financial policies. He warned time and time again about the credit bubble and the likely outcomes, not because he wished them on anyone but because he believed that they would happen and thus affect people adversely. He and Russ Winter and and a couple others were a few who did much to 'warn' about the approaching and inevitable chaos, in my universe at least. There simply was no way to keep the bubble alive. The only game was to keep inflating it (exponentially faster) until it popped or some exogenous event pricked it. Doug and many others argued that the longer the bubble was fed, the greater the damage. From my perspective, the serial bubbles were fed for at least 10 years, a time frame that has got to be the longest and greatest in history. Correspondingly, the pain will be ... So far, the only surprise to me is the magnitude of the damage, and we've only seen the tip of the iceberg, imo. If I'd better understood how the extensive writing and repackaging of phony mortgages had morphed into the modern day equivalent of 'tally sticks' then I'd have had a greater inkling of just how huge the problem would become.

To: glenn_a who wrote (90873)	1/28/2008 8:43:40 AM
From: Keith Feral	Read Replies (1) \| Respond to 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.