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Saturday, March 22, 2008

Personal Finance QuickTake: Financial Market Mess

Leading Economists are saying the we are not only in a recession now, but probably a severe one. Most had earlier believed that this would worst case be like 2001. A drop an economic time that felt like a recession, the a nice bounce back once the economy shock off the doldrums.

Now with Bear Stearns and continued market turmoil they are convinced that this is not going to be swept under the rug quite so quickly this time.

From the report:

No less an authority than former Federal Reserve Chairman Alan Greenspan wrote this week that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II.

Other noted economists are also sounding alarms. Harvard professor Martin Feldstein, the former head of the National Bureau of Economic Research, said recently he believes the country is now in a recession and it could be a severe one.
What got people's attention was how quickly Bear Stearns, the nation's fifth largest investment bank, could go from a stock market value of about $3.5 billion when the market closed on March 14 to being sold at the bargain-basement price of about $236 million two days later.

"We can't afford to stagger from one day to the next without knowing what large financial institution might be the next to go down the tubes because of a lack of liquidity. That is way too dangerous a game," said Lyle Gramley, a former Fed board member who is now an economist with the Stanford Financial Group. "It is possible that we could be entering the worst recession of the post World War II period. The threat is certainly there."

I was just looking late this afternoon, even with Fed Rates at 2%, 30-year Jumbo loans are still at 7%+! This makes it tough to refinance in a time where at least that market should be moving.

Some have said for awhile that 740 is the new FICO-08 720. In other words, even those that can now make there payments and would like to get in a more tradition loan structure can't due to tightening at the banks. There is a fine line between a small night-night drink and a fire house in your mouth. They have just well over tightened. You can't blame them given that the Bear went under in less than 2 weeks!

One of the rallying cries had been that rates will reset on those with ARM tied loans and they needed to move, but given that those rates are dropping is only those that are trying to do the right thing are getting punished.

It reminds me of the old joke about a group of folk on a plane and the Captain comes on the intercom and says, I have good news and I have bad news." The bad news is...we are hopelessly helplessly lost...but the good thing is with this tail wind we are way ahead of schedule!"


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