Interest Rate Roundup

Wednesday, November 21, 2007

Some morning headlines to ponder

Not all of us are on the road for the Thanksgiving holiday! Some working stiffs, myself included, must toil on in obscurity. Sigh. Okay, self-pity over. Let's look at some morning headlines ...

* The Japanese yen is surging anew, taking out the 109 level and technical resistance that dates back to September 2005 and May 2006. If this move can hold and/or gather steam, it'll be a sign of increasing risk-aversion and increasing unwinding of the "yen carry trade." You can read more about what that is and how it works here.

* Treasury Secretary Henry Paulson is acknowledging what I have been saying for a long time -- namely that the mortgage problems are NOT contained to subprime and that the surge in defaults is NOT over. In fact, it's going to get worse in 2008. You can read more of his interview with the Wall Street Journal here.

* Paulson is aggressively lobbying mortgage servicers to rework borrower loans. One idea: Freeze interest rates on ARMs, rather than let them adjust, for borrowers who are current on their loans and can afford payments at the teaser rate. Meanwhile, in California, Governor Arnold Schwarzenegger announced a deal with major servicers like Countrywide and GMAC to initiate freezes for some borrowers in his state. I haven't seen many details on the scope of the modifications.

* The credit markets remain extremely unsettled. The cost of buying credit default swaps, or insurance, on bank debt has surged to the highest on record. U.S. LIBOR rates have started ticking up again as well. The cost of interest rate swaps has soared as well.

* Oh and here's a just-in-time update from our illustrious former Fed Chairman Alan Greenspan, courtesy of Bloomberg:

"Former Federal Reserve Chairman Alan Greenspan said recent signs that a collapse in credit tied to subprime-mortgage lending was ending have proven wrong.

"'The progress has come to a halt' in recent weeks, Greenspan said at a business forum in Toronto today. 'The reason is increasing recognition that it's going to take a long while to get rid of those excess inventories of homes in theU.S.'"

To which I say, in very businesslike terms: "Duh." Greenspan has been so out to lunch on the housing and mortgage markets for the past few years -- both as a policymaker and a pundit -- that he should just come out and admit he has no idea what he's talking about. I still can't forget this gem of a forecast just over a year ago, where Greenspan said the "worst may well be over." And the utter lack of regulatory oversight during the housing and mortgage bubble is simply unforgivable.


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