Friday, November 23, 2007

James Hamilton provides some outstanding Fannie Mae & Freddie Mac analysis

and boy, do things look ugly or else opaque:
Perhaps you think we'll probably muddle through OK, unless the sale of Freddie's assets would so depress the market as to hinder extensions of new loans to creditworthy borrowers, thereby reducing home sales further, thereby depressing house prices further, thereby inducing more borrowers to default, so that we go from the good equilibrium to the bad equilibrium. But figuring out exactly where we stand currently on that slippery slope between A and B is not an easy matter.

Here's my bottom line: if Freddie cuts its dividend, that's a good thing. All the rest is worrisome.

No comments:

Post a Comment