Mortgage Crisis Spreads, Wall Street Gyrates, and the Fed May Drop Rates

Article Submitted by: PhilR
The Economy


The subprime/mortgage mess has accelerated this week and today the Fed stepped in to shore up the market. Many believe that a rate cut is inevitable to further shore up the market. In the meantime, the market gyrates up and down as more banks freeze credit and try to assess their positions.

 

Submitted: Aug 10, 2007    Views: 642    Comments: 2    Likes: 11   


The recent credit crunch caused by the sub-prime mortgage meltdown is causing many analysts to speculate that the Fed will have to cut rates shortly in order to inject additional liquidity into the financial markets. 

Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

Already today, the Fed took the stop of injecting liquidity into the market by adding $38 billion dollars into the market via the repurchase of mortgage backed securities. 

The stock market rose slightly today on tbe Fed's intervention, capping a week of volatility and gyrations in both directions.  Key highlights include:

 

  • Spanish bank BNP Paribas said it was freezing three investment funds due to losses in US housing loans.
  • Countrywide financial said "unprecedented disruptions" in financial markets could impact its condition.
  • Several prominent hedge funds and investment banks have seen losses accelerate.

For more coverage on this:

Stocks end turbulent week with small drop - Boston.com Stocks Are Volatile After Global Sell-Off - NY Times

 U.S. Stocks Recover From 213-Point Decline in Dow Average; S&P 500 Climbs - Bloomberg.com

 Fear on Wall Street - Fortune.com

 A Wild Friday on Wall Street - BusinessWeek

Impact of Mortgage Crisis Spreading  - WSJ




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Comments Received:

David Walsh
David_Walsh

This really seems like it is developing into a mess. It's hard to tell how far it will go. I've heard that they expect more ARMs to reset over the next couple of years which could keep trouble brewing for awhile.

Posted: Aug 11, 2007

Robert Unger
(Unregistered)

Wall Street seems to want to will a rate cut, but I don't think it is going to happen any time soon. The Fed's current view is that the current situation has been created by too much liquidity that needs to come out of this market, and if Countrywide or some other major bank goes under in the process, than so be it.

Posted: Aug 11, 2007



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