- General post (802)
- April 3, 2008: Armchair Economist gets a much-needed update
- April 3, 2008: Ghost of Herbert Hoover
- April 3, 2008: Are you smarter than a high-schooler?
- April 3, 2008: Katrina hero: Wal-Mart
- April 2, 2008: No Child Left Behind
- April 2, 2008: The poverty hype
- April 2, 2008: Oil profits
- April 2, 2008: Don's response
- April 2, 2008: Oil refinements
- April 1, 2008: My profile
Expectations matter
The Fed can’t fix home prices. It begins:
Is a housing bailout the solution for clogged-up credit markets and a faltering economy? What the Fed has been doing and did again yesterday hasn’t really worked, notwithstanding the pops it produces in the stock market every time it shovels liquidity into the system. The Fed’s latest move provides financial institutions another $200 billion in direct short-term lending against their unsaleable housing collateral. The Dow Jones jumped 416 points. But it won’t restart markets for the underlying collateral.
Where are the speculators, vultures and hedge funds? Where are the big money players willing to buy the exotic but still substantial mortgage-backed securities for which markets have ceased? The Fed’s liquidity rush seems only to have convinced them the time is ripe for staying on the sidelines.
To get to a real solution, speculators and investors need to believe that home prices are hitting bottom, that any mortgage debt they might buy today for 80 cents on the dollar today won’t be worth 30 cents tomorrow. Then the vultures will pile in: The transfer of wealth from the overleveraged banks and hedge funds to those who kept cash handy will be shocking, ugly and cathartic — but it will also be relatively quick. Credit markets will begin to function again. The economy will grow.