There are days when reading the headlines is like reading "Manias, Panics and Crashes". It's all just so damn OBVIOUS. At least to HP'ers...
Like night follows day, credit crunches and panics follow gleeful financial manias. And now we're here.
My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?
NEW YORK (MarketWatch)
Official news over the last several weeks that lenders from Countrywide to Freddie Mac would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what's changed?
But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: "Do you have an income?" and "Can I see proof?" has one and only one effect on credit supply and demand: a decrease.
And that means liquidity is drying up in the mortgage market.
Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an 'investment property.' And $3,775 when the re-set comes in late 2007.
Whomever it was that first came to his/her senses in this credit madness is moot; it's the fact that his/her action -- that mortgage banker, that CDO trader, whoever -- catalyzed the opposite trend toward probity.
Booms turn to busts not because something 'happened.' They turn to bust because there is simply no other path.
It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.
That credit supply is being tightened means we've passed the 'one-by-one' stage and we're approaching 'all-at-once.'
