Nouriel Roubini, competent financial market economist, is calling the latest peak in the credit cycle a "Minsky Moment".
It's a long article and hard to summarize. We obviously don't agree about the scope of a "credit crunch" (homebuilders going out of business isn't necessarily indicative of a credit crunch, for one).
Most things are obvious, however. We might have done better in policing some of the loan sales practices that may have created too many loans that started "rosey" but turned "ugly" as rates went up, maybe both in the near-prime and sub-prime market.
Why someone would want to compound market risks (floating rates) with below average and way below-average credit risks is beyond me. The answer likely lies with fees that underwriters were getting and too much hope. Sixty (60) plus of them are now bankrupt, however.
There will be an investigation into accounting practices, for the firms that bought and sold the mortgages.
The rest of the key variables seem unknown: How much has already defaulted and how much more there is likely to go, either measured in absolute dollar amounts or preferably, in default rates.
Because people don't know that, they can't figure out whether what they own is worth anything tomorrow, or not. In the meantime, the Fed is jumping in and holding people over until they figure that out (translated: guess their way through it *cough*).
After which time, the likely suspects will face blame for ... criminal stupidity.
Saturday, August 11, 2007
The Prime Singularity
