Mortgage Mania Blend
By Drew Johnson on Wednesday, August 8th, 2007 :: 10:51 amCategory: Online Articles, Reviews, Financial News
The Economist takes a bird’s eye view of the macro-effect on the mortgage squeeze on the rest of the credit industry.
This article examines the genesis of the current credit squeeze. Partly, they argue, it was the booming world economy. Overseas economies were doing so well that American exports were up and investors saw less risk in general as they invested big money into hedge funds. But this greater confidence has driven down yields, as there is inevitably less compensation for low risks. In the end, big hedge funds (like Bear Sterns) are taking huge hits, which adds to a general market decline.
And then there’s the mortgage industry. The Economist points out that the mortgage bust, which is only going to get worse, is cutting consumer spending even more. This has financial gurus expecting (read: hoping) for an interest rate cut to get things back on track, but nothing is certain.
The author speculates that all this could be good for the economy as a whole, as the increased fear (and disability) among large companies to make large merger deals could have them redirect their energy to growing business through capital spending. Whether this is true or not remains to be seen, as average consumers and debtors are much less concerned with big business getting deals made than maintaining their own financial well being.
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