Your's truly just returned from a conference he organized (with help from Susan Wachter, Marsha Courchane, Carol Reynolds, Bobbi Bernardini and Ron Donohue) on the subprime crisis the Weimer School of the Homer Hoyt Institute. I will speak in more detail about some of the issues later this week, but in the meantime, I want to put out four quick takeaways:
(1) Dennis Capozza says that defaults will not peak until around 2011.
(2) Amy Cutts says that the optimal statutory foreclosure period is something like 4 to 6 months--enough time to allow borrowers who can be saved to fix their problem, but not so long that they like the benefits of free rent.
(3) Something like 30 percent of subprime borrowers who used subprime to purchase a home put none of their own money into the transaction.
(4) Charles Leung has a nice model that shows that Central Banks are better off targeting the general price level, rather than asset prices.
More to come...
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4 comments:
If im in the situation of the owner of this blog. I dont know how to post this kind of topic. he has a nice idea.
If the central bank cannot prevent highly leveraged prices from entering bubble territory, then the only alternative capable of protecting the credit system from future collapse is to reduce leverage.
That means a minimum of 20% down payment. Doable with affordable prices, but not heavily zoned silly prices.
Financial crashes due to real estate are becoming a recurring pattern in the US. We had the S&L crisis in the late 80s, which pretty much vaporized the S&L model as mortgage funding. Now sub-prime has vaporized non guaranteed funding of securitized mortgages.
Each crisis gets bigger than the last one, and harder to fix. Now that GSE guarantees are necessary to sell securitized mortgages on foreign savers, the next crisis will involve direct tax bailout of GSEs. This will come at a time when Medicare/Medicaid/Social Security costs are rising rapidly due to boomer retirements.
Monetizing the debt may be a real possibility, virtually eliminating private pensions/savings/401ks. Total dependence on transfer payments may become the norm for the majority of retirees when the next mortgage crisis hits.
"Charles Leung has a nice model that shows that Central Banks are better off targeting the general price level, rather than asset prices."
Are you kidding me? Another nice model to justify the same mistakes. When will you people ever learn that these nice models you enjoy selling are disasters in the real world.
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