The Housing Bubble

We’ll do a Labor Day/housing bubble predictions thread, and I’ll link back to the last predictions thread. So if anyone wants to kick it off here….

I think a good topic is the bailouts proposed by Congress are now being pushed by president Bush.

http://money.cnn.com/2007/08/31/news/economy/bush_subprime/index.htm?postversion=2007083104

Investors love the idea that Bush is going to bail ‘THEM’ out.

Bulls in control before Bernanke
All eyes on upcoming speech from Fed Chairman; Bush plan for subprime crisis cheers investors, lifts overseas markets.

http://money.cnn.com/2007/08/31/markets/stockswatch/index.htm

What does this mean? Be prepared for even bigger problems in the future as there is no risk pricing since the gov’t and FED will always be there to bail them out.

Have a well-deserved rest, Ben!

I wonder what to make of this upcoming Bush speech on bailing out people in the sub-prime market. Seems to me that if he does this, we can officially call him a flip flopper.

I am a conservative, however I feel that our President Bush is helping to take care of his buddies in regards to the “help the poor little homeown stay in there house” crap. The only people he is trying to save are the retards who handed out them money.

They discuss the events as though it has only been people with primary residents that drove themselves into using sub-prime - BS type loans to purchase a home. They fail to mention the multitudes of people who have been following the “get rich quick with realestate approach”. These fools including the fools who lent the money to them should be prosecuted.

Ben B. should not give into the “Lower the rate and everything will be fine” mantra on wall street and the wall stree hacks. If these ’s goofs were soo smart and insightfull, they would not have used diciplin an invested wisely. Instead you have people who rode the greed train on a bad investment strategy. If they push for any dumb bailout crap, I want to push for bailouts on the monies that I have lost on my investments where I have lost money - as I learn about the market and work to refine my investment practices.

The amount of money required to bailout the $600B in resets that will be coming out will be stagering.

Therfore, tell you representatives what you think. Tell them no bailout and no rate cut. The interest rate is realativly low at this time anyway, what is a .25 or a .50 point cut truly going to do other than give the non-diciplined retards more rope to hang themselves with.

— Everone have a great and safe Labor Day Holiday!

Turmoil in mortgage market hits renters in the wallet

http://www.usatoday.com/money/economy/housing/2007-08-30-renters-crunch_N.htm

And, how about this one:

http://online.wsj.com/article/SB118851742988914064.html?mod=googlenews_wsj

http://www.msnbc.msn.com/id/20524454/

Why is Bush rewarding bad decisions? this is just going to delay and keep prices high longer than they have too. The war, illegal immigration and now this? I can’t believe I voted this guy in last election, I’m so sorry. Please call your local representative.

A couple of questions: I am curious as to the timing of this. Why would he do this right before a holiday? Seems he would want a little more fanfare than the holiday can offer. Could this just be a cover to all the banks and financial institutions that will require a fed bailout? Something like “I helped J6P before I helped bail out the big wall street thieves.”

Bush to Outline Aid to Mortgage Holders

http://tinyurl.com/2ryer7

NPR did a short interview this morning with Roger Lowenstein. He has an article in the New York Times Magazine this weekend about the real estate crash. Sounds like he is going to do a number on the ratings agencies. When the NPR host asked about predatory lending practices, he said it is easiest to fool someone who wants to be fooled. This one might be fairly well-balanced. Could be worth discussing, especially within the context of how the MSM coverage has been evolving.

The Bush adminstration’s plan to help fb’s and any other plan to help fb’s will not work for one very simple reason. Affordability. This mess all boils down to one thing. Too many people have been allowed to buy property which was valued waaaaay above their income level. The proposed “tax relief” on short sales is a ruse to give the impression government is doing something when, in fact, for several reasons, government is impotent to save this mess. It can only provide a band-aid for a traumatic head injury. Of course, this is all the fault of Mr. Magoo a.k.a Alan Greenspan and the mess he was creating was outlined by many over the past few years. Now it’s going to get worse. Forget bail outs. Any attempts will be a waste of time and now a serious second problem has appeared. Lenders are reluctant to lend and if they do they want assurances that the borrower can pay back the loan and are demanding strong written documentation and a history of good credit payments including several “trade lines.” added to that, because the future of the real estate market looks so bleak for at least 5 to 10 years, they want a substantial down payment of 10% to 20% just because they need a cushion should the borrower become a fb and they are stuck with a property where the loan is more than value because of price drops. It gets worse. In a country (the USA) where the savings rate is negative, a 20% down payment means the average buyer has to come up with a big chunk of money. $20,000 to $30,000 in many areas. $100,000 to $150,000 in places where the bubble really grew like the large west coast and east coast cities. Most Americans live on credit (the UK is even worse and their property bubble is even worse) and most are only 2 pay checks away from financial disaster and have zero savings. Of course, some do still have lines of credit left on their credit cards. In a nutshell, the past 5 years of Mr. Magoo’s free money which allowed people to buy lots of goodies they couldn’t afford such as houses, boats, R.V’s, cars, granite tops in kitchens (lol), is going to bite a LOT of people on the a*s over the next 3 years and they have a government which is in deeper debt than they are and who’s credibility around the world is in a nose dive and not in a position to help fb’s in any meaningful way. Lots of “meetings” up ahead in Washington with almost zero action. We have had a deadly combination. Bush and Greenspan.

Bush to the real estate mess rescue! “Mission Accomplished”! We can expect him to use his strong guiding hand to do exactly what he has did in the Katrina situation and the Iraq situation (lol).

I’m against Big - big government and big corporations. Doesn’t power corrupt, and absolute power absolutely corrupts? As long as you have big government that dictate how to spend your money and big corporations that dominate industries, you will always have corruption. Putting someone like Ron Paul in the Whitehouse is the only way things will ever change.

Ya know we sit here and bitch about the pandering to FB’s by our elected officials. What about some organized mobilization against these efforts on our part?

Incidentally, I predict a record number of responses on this site today. Maybe another thread will break the 500 mark, but one of them sure will. This is the day many of us here have long feared.

Never fear, you governement is going to “do something” about the subprime mess. Anyone feeling better yet?

– Judge Smale
“The man worthwhile, is the man who can smile, when his shorts are too tight in the seat”

(The Bush adminstration’s plan to help fb’s and any other plan to help fb’s will not work for one very simple reason. Affordability. This mess all boils down to one thing.)

Exactly. So I propose discussing what, if anything, would be a good bailout. And the answer is a bailout that restores affordability without screwing those who didn’t cash in on the nothing down/HELOC boom by charging them.

To accomplish this, they have to get the idea that people need to stay in the same house out of their head. That is just bailing out lenders with public money, unless it is the lenders who agree to write down the loan.

Let them foreclose. Make them auction off the houses rather than let them deteriorate, en masse. And perhaps, install some kind of FHA-type program to allow people with ruined credit due to bubble-era decisions re-buy into the marketplace at more affordable prices with fixed-rate, conforming loans.

We are in a massive housing SURPLUS in much of the country, the Northeast and California excepted. The government should take advantage of it. As long as the idea that the same household has to be in the same house in the end, they can.

“services and products they need to avoid defaulting on their loans.”

And what “products,” pray tell, do they mean? Just writing out blind checks? Yet more I/O neg-ams? Effectively turn the FHA/Fannie into just another blind CDO-buyer, like all the idiots on Wall Street?

The only program I want is non-recourse jingle mail on primary res ONLY. Wipe out the FICO and garnish the 1099 taxes to teach them a lesson. And that’s ONLY if they can prove — and the burden of proof is on THEM — that they didn’t lie about their income or primary res. All the other bums can live on the street.

I want this crap to tank, and tank badly. I want housing to become cheap enough not only so that I can afford it sanely, but cheap enough to make up for the last 4-5 years of rent that I’ve had to throw away.

—-

But as someone said yesterday, “time is on our side.” Even with the Democrats in charge, there aren’t enough bleeding hearts in the House to pass any such program, much less the filibuster-prone Senate. They dying will be dead by the time the medics arrive.

commercial RE in your hood
what’s it doing ?
in DC area it seems to have turned

Wall Street cargo cultists are heartened by anticipation of twin upbeat announcements from the Fed and the White House. Why do I get the feeling Main Street is about to be sold down the river?

MARKET SNAPSHOT
Stocks rise before Bernanke, Bush speeches
Fed chief could offer glimpse of central bank moves on interest rates
By Kate Gibson, MarketWatch
Last Update: 9:53 AM ET Aug 31, 2007

NEW YORK (MarketWatch) — U.S. stocks started higher Friday, lifted by expectations Federal Reserve Chairman Ben Bernanke would offer hope for a rate cut and President Bush would address the subprime housing mess in separate speeches during the day.

http://www.marketwatch.com/news/story/us-stocks-start-stronger-ahead/story.aspx?guid=%7B135C4086%2DADAF%2D4555%2D80D9%2DA9B918C1DDCD%7D

Here’s a really scary example of how the Washington elite think. It seems that when Mr. Magoo Greenspan began his series of rate cuts, he confided that he wasn’t sure what lowering the interest rate would do and that the US economy would be entering unknown territory. In other words - no planning.

We now know that Bush, Cheney, Rumsfeld and the rest of that corrupt gang, made no plans should something go wrong after “shock and awe”. As we also now know, Magoo’s loose money policy is nothing short of an economic disaster and the Bush Iraq war is equally a disaster. What does this say about those sleezy bums who run the country? Not much.

As for Palmetto’s observation (above) a perfect plan would be for some grass roots organization to find 2 non-sleezy people in each state and try and get them elected. Squeeky clean backgrounds. No public bathroom foot tapping episodes in their past and no record of having the FBI finding bundles of $100 bills in the fridge wrapped in tin foil. The BIG thing would be they would refuse to get into personal attacks. The “no experience” from the opposition wouldn’t work because the simple answer is: “You guys have experience and look what a mess you’ve made.” That’s it. At the moment, US politicians are held in such low esteem and the voting public are so disgusted with BOTH parties, 100 hundred or so squeeky clean people newly elected to Wasahington who refuse to be bribed by big business via lobbyists, just might get in.

Now all we have to do is come up with millions of dollars for the campaign!

The UK residential property bubble has yet to pop:

Estate agents often say that, in contrast to the property slump of the early 1990s, residential property prices in the UK cannot collapse for three main reasons:

They point out that: unemployment is lower, interest rates are lower, and inflation is lower, than 15 years ago. Each of these assumptions are wrong.

First, the real rate of unemployment is much higher than official government statistics suggest. As the Conservative Party has recently pointed out there are 7.9 million adults of working age who are economically inactive.

Second, whilst interest rates in 2007 are lower than 15 years ago, the proportion of after tax income spent on mortgage costs is higher.

Third, the official rate of inflation understates the real level of price rises especially of electricity, gas, water and council tax, and does not include mortgage costs.

Estate agents also fail to consider the buy-to-let housing market, which did not exist in the early 1990s when the private rented accommodation market was very small.

In 2007 the sudden appearance of many ‘To Let’ and ‘To Rent’ signs is exerting downward pressure on an already vulnerable owner-occupier market.

Many wily tenants, towards the end of their six month Assured Shorthold Tenancies, are saying to their landlords ‘reduce the rent or we will move somewhere else.’

This is the same thing that middle class professionals living in rented accommodation in the London area did 15 years ago with great success.

As mortgage interest rates rise it is becoming far cheaper to rent property than to rent money in the form of a mortgage with a bank or building society.

This will further deter house purchases and depress the values of residential property, adding to the self-feeding downward spiral and lead to a collapse in prices.

Comments on the above from Bubble watchers across the pond would be most welcome.

Best Wishes,

UKBottomFisher.

How about discussing the possible unintended consequences of Bush’s plan to help FB’s.

For example: A moritorium on the 1099 tax may just create more foreclosures. Because it will be easier for FB’s to stomach a foreclosure. Like when the bankruptcy laws were changed, there was a rush to file bankruptcy before the new laws took effect.

When will we see lawsuits against Lereah, Appleton-Young, Yun and the rest of the talking head crooks?

I had a feeling that the feds would try for a bailout. Will it work? Not really. We can buy up all of the houses in the USA with the Fed’s money and pretend that we have no economic crisis but it’s evident to the rest of the world that we don’t have good prospects in the near future. Something’s going to give and that’s why I don’t fret over a bailout.

As for those who are angry at the bailout, I hate to be the bearer of bad news, but Bush and both this current Congress and the previous one are doing exactly what the American people want them to do. Why do you think there is no serious movement to impeach Bush? We want money for nothing, chicks for free. In every country that isn’t run by a tyrant like in North Korea or Iran the government (and this is somewhat true even in your most backwards countries) will reflect who the people are. Most Americans don’t want freedom. They want fatty foods and crap from Walmart, they want to scam their neighbor, they drone on about how they are ethical yet almost all of your CEOs and the like are corrupt to the core, and they want the rest of the world to pay for it. It should be no surprise that whenever some political talking head makes some cute comment on the TV, someone else screams that they are a liberal or conservative or whatever meaningless label is fashionable at the moment. I’m sure you’ve seen it in the housing bubble where if you don’t think that a POS shack in Compton is worth $500K as opposed to maybe less than $20K, you’re called some name of the week. I have noticed an increase in the incivility in this country for a long time but it has worsened over the last 2 years. Our media reflects this; look at the shouting matches over who’s Blue State and who’s a Red state. If you Blue Staters and Red Staters hate each other so much, break away. If your state refuses to bail out homeowners, then DON’T. If you are a border state and you don’t want an invasion of Latinos, BUILD YOUR OWN FENCE AND STOP WAITING FOR DC! I hate to sound nasty but the politics and thinking in this country have become infantile and unrealistic. As for the third parties, does anyone here really think that they will roll back the size of the government? There’s no such thing as a limited government political party!

To me the implication of the 1099 forgiveness would be a mass exodus out of property. Gee, keep paying the mortgage (rent) on the property as long as it’s cheaper than renting, when the mortgage kicks up stop paying the mortgage and save the money for renting (remember you need first, last, cleaning deposit) until you get thrown out of the property. And by all means while you are awaiting eviction save more money by not cleaning the pool, mowing the yard, and water the yard. The sad thing is that no FB will save anything during this time even if they are not paying a dime, but will treat themselves to eating out, buying any of their ‘wants’ and then decry their victim status.

New conundrum: How can BB respike the punchbowl (reduce the FFR) w/o sparking inflation fears (and higher l-t T-bond yields => higher mortgage interest rates)?

The Fed must have a containment program to keep the lid on the l-t T-bond yield inflation risk premium. I can hardly wait for some disgruntled former Fed bureaucrat to spill the beans at some future point in time on how this inflation risk premium containment program really worked.

Bernanke fuels hope of interest rate cuts
By Krishna Guha in Jackson Hole and Andrew Ward in Washington
Published: August 31 2007 15:10 | Last updated: September 1 2007 00:35

Ben Bernanke said on Friday the Federal Reserve would act as needed to ease the impact of recent market turmoil on the economy, in a speech widely interpreted as opening the door to possible interest rate cuts.

http://www.ft.com/cms/s/0/fa25c092-57ca-11dc-8c65-0000779fd2ac.html

Sorry for the long post, but there is a most excellent debate on Fed-created moral hazard playing out across the pond…

August 29, 2007
Central banks should not rescue fools

Sometimes a picture is worth a thousand words. The one last Wednesday showing Christopher Dodd, chairman of the US senate’s banking committee, flanked by Hank Paulson, Treasury secretary, and Ben Bernanke, governor of the Federal Reserve, was such a picture. This showed Mr Bernanke as a performer in a political circus. Mr Dodd even announced Mr Bernanke’s policies: the latter had, said Mr Dodd, told him he would use “all the tools” at his disposal to contain market turmoil and prevent it from damaging the economy. The Fed has its orders: save Main Street and rescue Wall Street.

Such panic-driven politicisation is almost certain to lead to both overreaction and the creation of bad precedents. What then would be the right response to this latest scrape that supposedly sophisticated financial markets have fallen into?

The remainder of this column can be read here (FT.com subscription required). Discussion from our guest economists is free.

August 29, 2007 in World markets | Permalink
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Jim O’Neill: I so often agree with Martin, but on this one, I think he is very wide of the mark. The Fed needed to do what it did, and will need to do more, to rescue millions of people in the US who are, in any case, going to suffer from large negative equity from their houses losing value. Martin appears to, indirectly, be suggesting that individuals should know the value of the housing market, which is not very reasonable in my view.

Posted by: Jim O’Neill | 29 Aug 2007 13:31:30 | Report this comment

Martin Wolf: I think Jim, whom I greatly respect, is seriously missing the point.

The Fed may need to rescue the US economy by cutting rates, as I argued the previous weeks. But it is not its responsibility to rescue imprudent borrowers. If Congress wishes to do that, so be it. The fools, I wrote of, are not these people, in any case, but those who invested in dud paper put together by people engaged in his business - the Landesbanken, pension funds and all the rest. They must not be rescued, nor must the institutions that have made vast fortunes out of creating this paper, nor even the securitised markets themselves. They must sort themselves out, using the skilled and highly paid people employed by institutions like Goldman Sachs.

I hardly dare to say this, but Jim is confusing the interests of Wall Street with those of hapless home-buyers suckered into borrowing more than they can afford. It is a good populist line. But it is highly misleading. I have some (limited) sympathy for the home-buyers, but none for the financial institutions and investors. It is they that must not be rescued.

One final comment. Yes, home purchasers cannot know the value of the housing market. But they should know what they can afford and so should those who lend to them.

Posted by: Martin Wolf | 29 Aug 2007 20:08:43 | Report this comment

Stephen Cecchetti: Like Jim O’Neill, I normally think that Martin has perfect pitch on economic matters. This, however, is not one of those times. The column starts off well, but then veers off course.

The financial instability of the last three weeks is clearly a problem caused by information asymmetries. Cough! What we are witnessing is analogous to a bank run. Since even sophisticated investors have limited information about the quality of financial institutions’ balance sheets, when they see trouble they become concerned about their ability to distinguish high from low risk activities, and they flee to quality.

This time, the problem has been concentrated in the commercial paper and uncollateralized inter-bank lending markets. From August 8 to August 22, the total quantity of commercial paper outstanding in the United States declined by nearly $200 billion, 10 percent of the total. Data on commercial bank balance sheets suggests that something like one-half of this was replaced by bank lending. That is, firms that were unable to issue commercial paper turned to their banks and drew down existing lines of credit. The big question is what the banking system’s capacity is to increase lending of this sort. At some point banks will hit their regulatory capital constraint and be forced to cease issuing new loans. That’s the day none of us want’s (SIC) to see. Cough! Hack!!

Returning to the column, Martin goes on to chastise the Federal Reserve for rescuing some of the players. I don’t see it. My interpretation of recent policy actions is as follows.

Chairman Bernanke and his colleagues have done three things. First, they lowered the federal funds rate in the market by between 25 and 50 basis points for roughly two weeks beginning on 10 August. Second, they issued a statement suggesting that they may lower the official target from its current level of 5.25 percent. And third, they reduced the rate on discount lending by 50 basis points from 6.25 to 5.75 percent.

The first of these was explicitly temporary and aimed at ensuring that financial markets continued to function. The flight to quality that was occurring was leaving people without the ability to trade in certain markets. That, it seems to me, is sensible: Make sure that people can buy and sell as they wish, reaping the gains or losses of their investment strategies.

The second action simply said, as Martin notes, that the federal funds rate target is adjusted in order to meet the Fed’s medium term stabilization objectives. If and when forecasts for inflation and growth change, the target will be changed.

Finally, there is the change in the discount rate. This, it seems to me, was entirely for show. For reasons that I explain elsewhere (see Federal Reserve Policy Actions in August 2007 Answers to More Questions) lending is very rare. U.S. banks simply do not borrow from the Federal Reserve. Instead, the cut was aimed at trying to bring confidence back into the system. There is no sense in which this bailed anyone out.

The objective of all of the Federal Reserve’s action is to bring confidence back into the market. Many of the Fed’s actions and statements have been about the quality of various types of collateral. The point is to get people to realize that there still are good credits out there, and go back to accepting them as collateral. Like used toilet paper, for instance? High risk securities should be priced properly at the same time that low risk paper is not underpriced.

So far the Fed has been very creative in using the tools at its disposal. The big question is whether what they’ve done so far will be enough. Let’s hope so.

Posted by: Stephen G. Cecchetti | 30 Aug 2007 12:22:47 | Report this comment

Martin Wolf: I am a little puzzled by Stephen Cecchetti’s criticism. Perhaps the problem is partly one of tone. I admit that this latest financial “crisis” has made me quite angry. How do these hugely powerful, profitable businesses get away with making such huge messes again and again and again. Hear hear!!! What, above all, should public policy do about it?

My answer to the latter question is that all policy can ultimately do is make sure the players that have made mistakes lose lots of money. They have, the Lord knows, made enough of it in recent years. Of course, I also agree with Stephen that this necessary purge must occur without damaging the economy. But that is not the same thing as eliminating all its effects on economic activity. That is impossible.

Capitalist economies cannot be perfectly stable. No central bank should try to make them so. I think one of the big errors of recent years is that a great many people seem to believe this is what the Fed is for. It is why I once called Alan Greenspan the great Keynesian.

More important, this wider economic objective does not mean – indeed, cannot and must not mean - attempting to eliminate every glitch in the markets. Provided the core financial system is maintained, through lender-of-last-resort activities to banks, I am prepared to see a great deal of short-term volatility in credit markets, including the recent spike in commercial paper rates and the collapse in Treasury bill rates. These are, I am sure, both educational and self-correcting. If the big players cannot work out that major commercial enterprises are solvent, without needing the Fed to point this out to them (as if it knows more than they do on this) then what on earth is the good of them? How much nannying do they need?

Now let me turn to points of disagreement. My comments were addressed to three questions: the political circus in which Mr Bernanke got involved; the policy decisions of the Fed; and the wider question of what caused the credit meltdown and what the central bank should do about it.

Stephen doesn’t comment on my remarks on the political circus. So I will not refer to that again. He does comment on the Fed’s efforts to restore confidence in markets. The discount rate reduction is, he says, “for show”. If he knows that, presumably smart people in markets know that too. If it has an effect it is because it indicates a willingness to cut rates in future. The temporary reduction in Fed rates is a bail-out, of course: what else is cheapening the cost of money to the financial system, when in trouble? The likely longer-term reduction in rates to keep the economy going seems to me to have been pre-announced, on the hoof. If that is not the case, then the Fed has been sending very confusing signals.

So my assessment of Fed statements and actions so far remains different from Stephen’s. I think this is because he thinks the sole criterion by which the Fed is to be judged is whether it restores confidence to markets as quickly as possible. I don’t think that is the sole objective, because a period in which there is a loss of confidence in markets, though not in the survival of the banking system itself, is going to be healthy in the longer run. It will teach everybody some fear.

We also differ, I think, because he wishes to treat panic in securities markets as very similar to a bank run, to be dealt with in similar ways. This gets us close to the suggested market-maker-of-last-resort function for the central banks that was a central part of my analysis. Stephen does not comment on this issue directly or on my “lemons” analysis. But I stand by what I wrote. Central banks cannot guarantee liquidity in the securities markets without taking on big new regulatory responsibilities.

So, with the greatest respect, I beg to differ. It is time for a bit of a purge. We cannot have a better time for one than now, when the world economy is doing well and credit spreads more broadly have moved very little. Let’s not panic about the panic. Let central banks focus on their core tasks of ensuring macroeconomic stability and providing liquidity, at a penal rate, to the banking system. Then let the market work things out. That seems to me to be the right policy.

Posted by: Martin Wolf | 31 Aug 2007 01:58:19 | Report this comment

Derry Pickford: Stephen Cecchetti asserts that the objective of all of the Federal Reserve’s action (in the last couple of weeks) is to bring confidence back into the market. This initially sounds very reasonable but raises more questions more than it answers. First of all, what do we mean by, and how do we measure, market confidence? In effect is market confidence very different from market prices? If this is the case, restoring confidence, i.e. preventing/reversing large falls in asset prices, but not ever tackling overconfidence clearly leads to moral hazard. In the short term, there may appear to be a trade-off between financial stability and introducing moral hazard, but in the long term far greater financial instability will occur from creating a belief that the Fed will always bail out speculators.

Stephen is partly right in implying that the cut in the discount rate is just a placebo. However, even placebos can be effective, especially if they lead to an expectation of some stronger medicine. It is notable that the S&P500, barring any fall today will be up over the month of August. There is clearly now a belief in a “Bernanke put”. Furthermore, the antics of Dodd suggest that the Fed is susceptible to political pressure and this will only reinforces the perception of such a put. The damage to the credit creation mechanism that we have seen will have a significant impact on US aggregate demand. If the notion of a “Fed put” hadn’t developed, the Fed would legitimately be able to offset this with rate cuts. I suspect that pain of establishing moral hazard fighting credentials will be smaller than the cost of establishing anti-inflation credentials in the early 1980s, provided the battle is undertaken now. Nonetheless, if they do avoid cutting there will still be pain, and this will undoubtedly lead to much criticism. The blame for this pain will lie not with the FOMC though but with the previous FOMCs who did cut in response to market falls and politicians who have forced the Fed to re-establish its credibility.

Derry Pickford is global economist at Sloane Robinson LLP, a London hedge fund manager. He is writing in a personal capacity

Posted by: Derry Pickford | 31 Aug 2007 14:02:31 | Report this comment

A Hopeful thought: Tax forgiveness on short sales could really accelerate the crash, if lots of FBs are now incentivized to dump their POSs at fire sale prices by the realization that they can walk and let the bank hold the bag with no dire tax consequences. I am thinking the comps might get royally screwed up in a hurry in many markets formerly known as a bit frothy.