by Tanta on 8/31/2007 06:57:00 AM

There's nothing like reading the New York Times' version of an anonymous White House official's version of what Bush is going to say but has not yet said about subprime lending at 6:00 a.m. to really start your day off. Oh, look, there's a white rabbit!

Seriously. Get this:

Administration officials, who asked not to be identified, briefed a handful of news organizations on the proposals to be announced by Mr. Bush at an appearance in the White House Rose Garden on Friday morning.

The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.

“The primary focus is to help individuals who have an opportunity to stay in their homes to stay in their homes,” this official said. “The subprime mortgage situation is having a crushing effect on a lot of communities right now.”

Despite the assertion that affecting the markets is not the goal, one administration official said Thursday evening that concern about Wall Street’s reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be.

But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss.

“You can’t solve the problems in the financial markets unless you can make some progress on the retail end of it,” said this official. “This is also a step to get banks to start loaning again.”

White House flunkies require anonymity to discuss Bush's "announcement on housing"? There could be, like, reprisals if they used their names? They're like, what, bloggers?

It's better for the markets if a muddled version goes out Thursday night than if we just get the actual version during trading hours? Is this really what these people think the "efficient markets" theory means? Are we all really confident that the MBS market won't still be forced to "guess" what this means after the announcement?

And what if this version isn't, actually, muddled? What if Bush really is going to propose a mechanism for lenders to refinance loans that can be sold at a loss? And what if that "stabilizes" things because heretofore banks with lending portfolios have been unable to make refinance loans at a loss, but once the President tells them they can, they'll lend more? This could, like, totally revolutionize Econ 101.

Fortunately, I've already got my diploma, and they can't make me take Econ 101 again. I think I will just wait for the, uh, official announcement before attempting to post anything more on the subject. I wouldn't want to move the MBS market in the wrong direction or anything.

by Calculated Risk on 8/30/2007 08:45:00 PM

From Reuters: Moody's president sees unprecedented illiquidity (hat tip Viv)

The credit market is experiencing an unprecedented loss of confidence due to the lack of transparency over where exposures lie rather than underlying credit quality problems, Moody's Investors Service President Brian Clarkson said on Thursday.

"I've been in the marketplace for 20 years ... what we're experiencing is an extreme lack of confidence and lack of liquidity. I have never seen this before," Clarkson told Reuters in an interview. "A lot of it has to do with transparency: it's not clear who owns what."

As an aside, watch for layoffs on Wall Street next week:

"Everyone in New York is expecting to hear about more job cuts in September. There'll be a wave of them."

by Calculated Risk on 8/30/2007 05:30:00 PM

UPDATE: Changed 2nd graph to make the price change clearer (hopefully). Original 2nd graph is at the bottom. Nominal prices in San Diego fell a cumulative 18% in terms in the early '90s.

In an earlier post, I presented some graphs based on the new Goldman Sachs housing forecast. One of the graphs, reproduced below, showed a possible bottom for residential investment (RI) in Q4 2008.

Click on graph for larger image.

To this graph, I added a caveat:

NOTE: Please don't confuse a bottom in RI, with a bottom in housing prices. During previous housing busts, existing home prices continued to fall long after residential investment bottomed.

To clarify this statement, here is a graph showing prices vs. residential investment for the early '90s housing bust. The prices are based on the S&P/Case-Shiller price indices for the U.S. and San Diego. These are nominal prices; for real prices the time lag between the bottom for RI and existing prices would be even longer.

In the '90s housing bust, residential investment (as a percent of GDP) bottomed in Q1 1991.

The bottom for nominal U.S. house prices was in February 1994, about 3 years after the bottom for RI. In real terms (not shown) the bottom was in 1996.

The bottom for nominal San Diego prices was in March 1996, five years after the bottom in RI.

Note: Original graph.

This is the typical pattern for housing busts, and it is because prices tend to be sticky and don't adjust immediately to the market clearing price. It's important to remember that a bottom in RI will probably precede a bottom in existing home prices by a few years.

by Tanta on 8/30/2007 03:50:00 PM

This is the slide presentation from Freddie's Q02 conference call this morning; there's some interesting data on the credit quality of the loan portfolio. I have not yet seen a link to a transcript of the call. If you want to listen to a recording, it's available here.

by Calculated Risk on 8/30/2007 01:28:00 PM

From Rex Nutting at MarketWatch: Commercial paper market still shrinking

Outstanding commercial paper in the U.S. financial system dropped sharply for a third straight week, indicating that a severe credit crunch has not eased in the market that supplies most large companies with operating funds.

Outstanding paper fell by $62.8 billion, or 3.1%, in the week ending Wednesday to $1.98 trillion, bringing the total decline in the past three weeks to $244 billion, or 11%, the Federal Reserve reported Wednesday.

Commercial paper consists of short-term promissory notes issued by corporations to raise cash for their operational needs. Most of the paper has maturities between 30 days and 270 days; anything longer than that requires a registration statement with the Securities and Exchange Commission.

An estimated $1 trillion in commercial paper will mature in the next few months. ...
...
The declines in outstanding paper have been felt strongest in the asset-backed portion of the market, which represents about half of all commercial paper. These securities are backed by assets such as credit-card receivables or mortgages. In the latest week, asset-backed paper fell by $59.4 billion, or 5.6%. In the past three weeks, this kind of paper has fallen by $184.9 billion, or 15.6%.