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The history is that lenders move in great caravans between two
extreme points, which we can call stringency and accommodation.
-- James Grant, the editor of Grant's Interest Rate Observer.
ZERO DOWN; The Loan Comes Due
By FLOYD NORRIS
Published: August 5, 2007
Q. Over the last couple of days the Times and other publications
have reported that the Federal Reserve has injected $68 billion
into the equities markets and that foreign central banks, such
as the ECB, have pumped even larger amounts of capital into
their markets.
Could you tell me precisely how this is done? Are the central
banks simply printing money to purchase the CDO’s other debt
instruments that nobody else wants to touch? If so, isn’t this
just a way of socializing the costs of bad investment through
inflation? Finally, didn’t this whole mess begin with too much
liquidity and reckless lending practices?
The Fed injects money into banks by lending dollars on the
security of high quality assets held by banks. Under the
rules central banks now follow, this is almost an automatic
action.
The Fed sets a target on the federal funds rate — the rate
on loans between banks. If the market rate rises above that
rate, it is a sign that demand for funds is greater than anticipated,
and the Fed meets the demand. Similarly, it withdraws loans if
the rate falls below that level. There was an interesting twist
on one day, in that the Fed asked that the security for loans be
mortgage securities, but those are of the type issued by Fannie
Mae and Freddie Mac, not the ones that are now questionable.
Because the Fed is not lending against bad securities, it is not
bailing out anyone. But that move enables banks to lend to
customers who own securities that cannot be sold right now.
Manhattan dermatologist Dr. Patricia Wexler puts sunscreen between her toes.
But as proof that she is not merely some phobic S.P.F. showboater in
Gandhi clothing, Dr. Wexler explained that her favorite moment comes
when she can finally escape her portable sun shields for an immobile
one truly out of the sun. That would be the 10-by-10-foot Treasure
Garden cantilever umbrellas next to her pool at her house in East
Hampton, N.Y. They are the product of a long, long search.
“Every year I would look for something better than what I had,”
she said. And every year the Atlantic winds knocked over each
new arrival. “So you could never really relax,” she said. “You’re
trying to read, but you’ve always got one eye on the umbrella to
make sure it’s staying put.”
The Treasure Garden umbrella’s base, which when filled with sand
weighs 300 pounds, does just that. “This is the ultimate umbrella,”
she declared, which explains why she bought four, at $1,255 each,
at Hildreth’s in East Hampton. “They’re worth every penny.”
They worked, it turned out, too well, casting her entire patio into
shade. “I have a few friends we’ve had for a long time,” she
said carefully. “They have that real Miami skin — dark, dark tan
and definitely aged. And when they visit, they want to go and
sit by the pool with a drink, just to make sure they get every ray.
They won’t get near the umbrellas.”
Possessed: Don’t Let the Sun Catch You Tanning
By DAVID COLMAN
Published: August 5, 2007
Dr. Patricia Wexler, a prominent Manhattan dermatologist, has an
enduring hate-hate relationship with the sun...
The peak month for the resetting of mortgages will come this October,
according to Credit Suisse, when more than $50 billion in mortgages
will switch to a new rate for the first time. The level will remain above
$30 billion a month through September 2008. In all, the interest rates
on about $1 trillion worth of mortgages, or 12 percent of the nation’s
total, will reset for the first time this year or next.
A couple of years ago, by comparison, only a marginal amount of
mortgage debt — a few billion dollars a month — was resetting each
month.
[Via NYT,
Economic Scene
Keep Your Eyes on Adjustable-Rate Mortgages
By DAVID LEONHARDT
Published: August 1, 2007
The pool of people falling behind on their house payments is starting to widen, and adjustable-rate mortgages are the main reason.]