Joshua Rosner, a managing director in New York at investment-research firm Graham Fisher says that housing isn't the core problem with the economy. Instead, it's the shutdown of the debt securitization markets, which has in turn shut down lending.
Bloomberg paraphrases him as saying:
"The main issue is the packaging of debt into securities, which is creating a credit crunch by leaving lending dependent on capital-constrained banks, according to Rosner, who in early 2007 predicted mortgage bonds would spark a global financial crisis. Issuance of U.S. asset-backed securities fell 81 percent to $159.8 billion in 2008, plummeting in the fourth quarter as credit-card, automobile-debt and student-loan securities sales evaporated for the first time, according to Deutsche Bank AG."
This is the chicken and egg. What caused the securitization market to shut down? The rise in mortgage foreclosures. The end of the securitization market raised interest rates and prevented many from getting affordable mortgages, further eroding home values. Eroding home values destroyed bank balance sheets, further restraining lending.
For a very good overview of this whole process, check out the article Planet Finance Crashes to Earth.
It seems to revive the economy a myriad of strategies will have to be pursued that help the consumer and the financial system at the same time.
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