REAL Trends Comment: The proposed bailout was brought on by several factors. High levels of liquidity in world capital pools and extremely low interest rates for too long a period of time created an environment where debt became too attractive a means for investment; both regulated and unregulated mortgage conduits lowered or removed any restraints as to historical underwriting standards; the "mark-to-market" provisions of recent financial re-regulation forced firms to write down and write off bad investments and the affordability crisis hit housing sales hard enough to drop units and prices hard.
Whether a bailout of the proportions estimated by the Treasury will actually diminish the declines in prices and units is unknown at the time of this writing. We do believe that the last thing that Federal regulators should do at this time is reduce liquidity or raise interest rates.
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