- Joined
- Sep 25, 2007
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- 201
Hi all,
An article from the October 21st edition of the Globe and Mail (Report on Business). Excerpts:
Before we get to that, though, here`s a dose of good news. The case of subprimitis extremis is passing. If it seems like the housing situation is only getting worse – well, it`s because you haven`t been paying enough attention. Yes, the latest numbers show that home builders have dropped tools; in 2008, they`re on pace to build the fewest number of the new homes and apartments since the end of the Second World War. But that`s the way it should be. How else can the U.S. work off its massive inventory of vacant houses than to stop throwing up new ones? Here`s another bright spot. The real estate crash, though ugly, has finally brought home prices back to sane levels.
That brings hope that housing prices will stabilize in 2009 and the writeoffs will ease. "So many of the bad [mortgage] loans have already gone bad," says Scott Hoyt, senior director of consumer economics at Moody`s Economy.com. Meanwhile, political pressure means that Washington "is not going to let foreclosures get much worse."
That brings hope that housing prices will stabilize in 2009 and the writeoffs will ease. "So many of the bad [mortgage] loans have already gone bad," says Scott Hoyt, senior director of consumer economics at Moody`s Economy.com. Meanwhile, political pressure means that Washington "is not going to let foreclosures get much worse."
So what`s the problem for the U.S. banks? They still haven`t paid the full price for the rest of the debt orgy. Take credit cards. In the days of easy money, lenders gave them out like Skittles. Now delinquencies are finally rising; banks are writing off more than 5 per cent of balances. In past recessions, the default rate on cards has gone higher than that.
So billions more in credit-card losses are a certainty. Ditto for auto loans. But the real hit – and the one few people are talking about yet – will come from business loans.
During the real estate bubble, a lot of regional U.S. banks were shoved aside in the mortgage market by companies like Countrywide Financial. So how did they get their piece of the action? By lending money to builders and land development companies instead.
And if the past is any guide, it will take years – not months – for all the bad debt to be washed out of the system. That`s why Mr. Paulson`s plan, though helpful, can`t stop an economic contraction. How deep the recession will be, nobody knows. Of this much you can be sure: It won`t be over quickly.
http://www.theglobeandmail.com/servlet/sto...obColumnsBlogs/
Keith
An article from the October 21st edition of the Globe and Mail (Report on Business). Excerpts:
Before we get to that, though, here`s a dose of good news. The case of subprimitis extremis is passing. If it seems like the housing situation is only getting worse – well, it`s because you haven`t been paying enough attention. Yes, the latest numbers show that home builders have dropped tools; in 2008, they`re on pace to build the fewest number of the new homes and apartments since the end of the Second World War. But that`s the way it should be. How else can the U.S. work off its massive inventory of vacant houses than to stop throwing up new ones? Here`s another bright spot. The real estate crash, though ugly, has finally brought home prices back to sane levels.
That brings hope that housing prices will stabilize in 2009 and the writeoffs will ease. "So many of the bad [mortgage] loans have already gone bad," says Scott Hoyt, senior director of consumer economics at Moody`s Economy.com. Meanwhile, political pressure means that Washington "is not going to let foreclosures get much worse."
That brings hope that housing prices will stabilize in 2009 and the writeoffs will ease. "So many of the bad [mortgage] loans have already gone bad," says Scott Hoyt, senior director of consumer economics at Moody`s Economy.com. Meanwhile, political pressure means that Washington "is not going to let foreclosures get much worse."
So what`s the problem for the U.S. banks? They still haven`t paid the full price for the rest of the debt orgy. Take credit cards. In the days of easy money, lenders gave them out like Skittles. Now delinquencies are finally rising; banks are writing off more than 5 per cent of balances. In past recessions, the default rate on cards has gone higher than that.
So billions more in credit-card losses are a certainty. Ditto for auto loans. But the real hit – and the one few people are talking about yet – will come from business loans.
During the real estate bubble, a lot of regional U.S. banks were shoved aside in the mortgage market by companies like Countrywide Financial. So how did they get their piece of the action? By lending money to builders and land development companies instead.
And if the past is any guide, it will take years – not months – for all the bad debt to be washed out of the system. That`s why Mr. Paulson`s plan, though helpful, can`t stop an economic contraction. How deep the recession will be, nobody knows. Of this much you can be sure: It won`t be over quickly.
http://www.theglobeandmail.com/servlet/sto...obColumnsBlogs/
Keith