Hi. Well. The stock market shook off August's credit crunch doldrums in a major way, and there was an eerie quiet surrounding all the housing/mortgage/credit derivatives problems after the Fed rate cut. But today it appears, it ain't over. A special credit cruch redux issue today.. beginning with remarks from the Fed Chairman last night and the Treasury Secretary today.. and this past weekend's revelation that the world's second biggest bank is setting up a fund to try to bail itself out of what looks like big trouble.
So now, as the WSJ reports, Treasury Secretary Paulson says this country's housing market meltdown represents a serious risk to the overall economy. A pretty big departure from this past Spring when these issues were "contained." Our friends at CalculatedRisk thought Paulson sounded like he worked for the National Association of Realtors in July. Paulson should also check in with his boss, who downplayed the housing market's potential impact on the overall economy five days ago. Babson professor Peter Cohan looks at Paulson's remarks today and Fed Chairman Bernanke's observation last night (on mortgage derivatives) that he wishes he knew "what these damn things were worth," and sees something scary. Here's the AP writeup on Bernanke's remarks. And the WSJ provides the text of Paulson's.
And just to add to the general sense of precariousness, foreclosures are accellerating this year, at a level over and above even the peak bubble years of 2005/06, as the New York Times notes.
Now to the banks, the toxic mortgage debt sludge and the self-bailout plan called M-LEC (Master-Liquidity Enhancement Conduit.. oof) that has raised a lot of eyebrows on Wall Street and in the blogosphere. The fund would attempt to shore up off-the-books Specialized Investment Vehicles (SIVs) filled with toxic mortgage paper by opening up a "Superfund" (seriously.. that's what they're calling it.) The New York Times led with it today. The WSJ notes that it'll take a brave investor to throw money into this pot. Yves Smith at NakedCapitalism has been doing a bang-up job analyzing the SIV issue. His posts can be found here, here and here. Highly recommended reading. Economist Nouriel Roubini gets more technical, and is just as skeptical. Fortune's Peter Eavis is skeptical too. The WSJ's economics blog raises some questions. Tanta at CR gets even more wonky. And NakedShorts brings his characteristic sarcasm/humor to bear.
And looking backward (and forward at the same time?), Prisonplanet links to video of journalist Robert Kuttner and former SEC Chairman Williams Donaldson's appearance on NewsHour, in which they draw parallels to the mistakes of the 1920s. And yeah you know what happened at the end of that.
If you're freaked out by what's going on, you've got company. The trader who runs a blog and message board called MarketTicker has posted an on-line petition to try to get Washington's attention.
On the other hand, Slate's Mickey Kaus, who confesses he doesn't know jack about any of this, still thinks it's all a crock. P.S. check out the time stamp on this post. Dude, get some sleep.
And finally, a little guilt trip.. pondering what we could be doing instead of boning up on the intricacies of Specialized Investment Vehicles.