March 10, 2008
Column: In the grip of implacable subprime forces
Months into the subprime meltdown, economists and policymakers in the US seem no closer to agreement about what, if anything, to do. Last week Hank Paulson, Treasury secretary, and Ben Bernanke, Federal Reserve chairman, were at odds over how to stem mortgage foreclosures. Mr Bernanke called on banks to be more willing to reduce principal. Mr Paulson said voluntary adjustments to mortgage rates and payment schedules were working.
For the moment, both men are merely exhorting – moral suasion, it used to be called. Mr Bernanke is not yet proposing that banks should be compelled to write down loans, and Mr Paulson notes that voluntary writedowns are among the options his “Hope Now” alliance of mortgage lenders and servicers can choose if they wish. Still, the tone of their comments was different. Whether he means to or not, Mr Bernanke continues to signal mounting alarm at the economy’s prospects.
As well he might. February saw the biggest drop in non-farm payrolls for five years – 65,000, more than twice what the market expected. In the fourth quarter of 2007, more than 2 per cent of the country’s 46m mortgages were in foreclosure, and nearly 6 per cent past due date – both sharply higher than a year ago. For subprime mortgages, the numbers were 13 per cent in foreclosure and 20 per cent past due. House prices have much further to fall – maybe another 20 per cent, analysts say. That will drive many more borrowers into negative equity and force the pace of foreclosures still higher.
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The heart of Mr. Crook’s article is his call for stricter regulation of mortgage lenders. -something, by the way, that Barack Obama called for in his FT oped piece some months ago - not exactly an “empty” or a “vacuous” article.
However, the lending industry fought tooth and nail against even the slightest move toward tighter standards, including greater disclosure requirements, and was supported by an avalanche of comment, including a number of letters to the FT from right-wing and “libertarian” think tanks, decrying the alleged horrors of putting in place any controls whatsoever over “the market” and touting the supposed virtues of unlimited financial “innovation”, which could more correctly be called fraud, as the FBI evidently may believe - see below.
As a result, the subprime meltdown has helped to create a world wide financial crisis which, as Wolfgang Munchau (sorry, Mr. Munchau - my keyboard is umlautless) points out in today’s FT, is not just one of “liquidity” but of solvency. Meanwhile, the only federal agency that seems to be taking any effective action at all is the FBI, which, again according to today’s FT, is said to be investigating America’s largest subprime lender, Countrywide, for criminal fraud.
This is, however, like locking the front door after the keys to one’s home have been stolen, as, indeed, they have been for more than 2 million subprime borrowers facing foreclosure as a result of the predatory lending scandal.
Posted by: algasema | March 10th, 2008 at 2:00 pm | Report this commentThere is no “uncapped tax relief for owner-occupiers”.
A year ago people were crying for government action to produce affordable housing and to reduce the balance of payment deficit. Now that the market is moderating those two, people are crying for the opposite.
Posted by: Bababooey | March 11th, 2008 at 1:36 am | Report this comment[…] crisis/meltdown have also been echoed today – in a series of op-eds – by Clive Crook in the FT (“In the grip of implacable subprime forces”), Paul Krugman in the NYT (“Mr. […]
Posted by: jamie.com » Blog Archive » Nouriel Roubini: The Rising Risk of a Financial Meltdown and the Escalating Losses in the Financial System | March 11th, 2008 at 1:20 pm | Report this commentwhat are breaking down recently not just equities, indices etc BUT FAITH as such which is actually the glue of social fabrics How to restore faith
Posted by: gunajit | March 11th, 2008 at 5:26 pm | Report this comment