[getsmart-l] Credit freeze - I have never seen it happen so quickly!

[23skidoo]

We are now experiencing a credit freeze as North American banks begin 
their little cutback schemes to salvage losses as the subprime cloud hanging 
over us bursts the housing bubble wide open. 
 
"I have never seen it happen so quickly" , Steve Walsh, Mortgage Broker in Scottsdale, Arizona. 

US Stocks tumbled Friday amid fears that the worsening ills in the 
mortgage and debt markets could soon take a significant toll on 
consumers, businesses and the overall economy. The latest decline 
capped a volatile two weeks on Wall Street in which the stock market 
has swung wildly from day to day, reflecting rising uncertainty 
about the risks plaguing the economy. 

Film at 11:00
***

Stocks Fall Sharply Amid Credit Fears 


By VIKAS BAJAJ New York Times, August 3, 2007 


Stocks tumbled today on fears that the worsening ills in the mortgage 
and debt markets could soon take a significant toll on consumers, 
businesses and the overall economy. 


The latest decline capped a volatile two weeks on Wall Street in 
which the stock market has swung wildly from day to day, reflecting 
rising uncertainty about the outlook for markets and the risks 
plaguing the economy. The biggest moves lately have often occurred 
shortly before trading closed. 


Indeed, the market dropped particularly sharply this afternoon after 
investors were rattled by remarks by executives at Bear Stearns, 
the investment bank that has been heavily involved in mortgage 
securities. 


The firms assurances about its own financial position were overshadowed 
by bleak comments by its chief financial officer about the credit 
markets. 


I have been at this for 22 years, and this is about as bad as I 
have seen it in the fixed income market, said Samuel L. Molinaro 
Jr., Bear Stearnss chief financial officer. 


The Standard & Poors 500 stock index fell 2.7 percent today, with 
much of the decline coming after Bears conference call started 
around 2 p.m. 


The Dow Jones industrial average lost 281.42 points, or 2.1 percent. 
And the dollar fell noticeably against the euro and the British 
pound. 


While consumers continue to express confidence in the outlook for 
the economy, the governments monthly employment report, released 
this morning, added to worries about the spreading impact of the 
housing slump. The economy added only 92,000 jobs last month, down 
from 126,000 in June, and the unemployment rate ticked up to 4.6 
percent. 


Mortgage companies have significantly tightened credit lately to 
borrowers with weak credit histories and are even cracking down on 
those with solid records who are taking on riskier loans. 


One large mortgage lender, American Home Mortgage, shut down its 
lending operation today after banks that had lent it billions of 
dollars called in their loans because of the declining value of the 
companys investments. 


Earlier this week, the credit worries were so severe that even 
Countrywide Financial, the nations largest mortgage company, felt 
compelled on Thursday to tell investors that it did not face any 
difficulties raising money. 


Lenders say they are increasingly unable to sell home loans that 
allow borrowers to finance the full or nearly full cost of a property 
or cannot fully document their incomes. Many companies were writing 
these loans and selling them to investors just a few weeks ago. 


I have never seen it happen so quickly, said Steve Walsh, a mortgage 
broker in Scottsdale, Ariz. Banks always do these little cutbacks 
here and there. What they are doing now is a liquidity crunch. Its 
a credit freeze. 


Richard Syron, chief executive of Freddie Mac, the large buyer of 
mortgages created by Congress in the 1970s, said today that the 
speed and severity of the tighter credit terms was surprising, but 
perhaps necessary given the excesses in the market in recent years. 


In a telephone interview from Washington, he said he was wary of 
the calls by some mortgage industry officials that Freddie Mac and 
its cousin Fannie Mae step in to buy loans and securities that 
private investors will no longer purchase. Mr. Syron noted that his 
company is operating under an agreement with its regulator that 
limits the size of its portfolio. 


There are some loans that are in difficulty because of liquidity 
issues providing more liquidity would help that, Mr. Syron said. 
There are other loans that probably should never have been made and 
providing more liquidity will make that situation worse in the long 
term. 


The interest rates on many popular mortgages have risen by as much 
as a full percentage point, if they are available at all, said 
George J. 


Jenich, founder of FreeRateSearch.com, a consumer Web site. But 
rates on conventional fixed-rate 30-year mortgages have held steady. 


Bear Stearns scheduled its conference call to reassure investors 
after Standard & Poors, one of the agencies that rates the 
creditworthiness of companies, said it was considering downgrading 
Bears rating because of the collapse of two hedge funds it recently 
put into bankruptcy after they made losing bets on mortgage securities. 


Despite all the worries about credit markets, however, the economy 
continues to plow ahead, and even todays jobs report was not weak 
enough to suggest that the Federal Reserve would cut its benchmark 
short-term interest rate when it meets next week. 


But the risks to the economy do seem serious enough that investors 
now expect the Fed to cut its rate to 5 percent, from 5.25 percent, 
by November, based on the price of a futures contract that is tied 
to Fed policy. And the yield on the 10-year Treasury note, which 
moves in the opposite direction from its price, fell to 4.69 percent 
from 4.77 percent Thursday evening. 


Wall Street analysts say they are increasingly concerned that 
consumer spending will weaken as more people in housing and related 
sectors lose their jobs. They also worry that many homeowners will 
cut back as they find it harder to refinance or borrow against the 
value of their homes. 


You have a broad-sell off because people dont know how far the 
subprime cloud is going to hang over U.S. industries, said Jake 
Dollarhide, chief executive of Longbow Asset Management, an investment 
firm based in Tulsa. If they dont get assurance, they are just 
selling off rather than asking questions. 


The S.&P. has fallen 7.7 percent, to 1,433.06, since July 19, the 
day it established a record. The last two weeks were the worst such 
period in more than four and a half years, and the broad market 
index is now up just 1 percent for the year. The Dow is doing 
somewhat better; it has fallen 5.9 percent, to 13,181.91, since 
July 19, but it is still up 5.8 percent for the year. 


And through it all, businesses have been reporting strong earnings. 


Profits are up 9.6 percent in total for the 80 percent of the 
companies in the S.&P. index that have released results for the 
second quarter, noted Douglas M. Peta, chief market strategist at 
J&W Seligman & Company, an investment firm based in New York. 


Despite that, Mr. Peta said, he is not particularly optimistic about 
the near-term outlook for stocks and far less so about the market 
for debt. 


It seems to me things got every bit as silly in the credit markets 
in the last few years as they did in tech stocks in the late 1990s, 
he said. I still think we may have a ways to go in this. 


http://www.nytimes.com/2007/08/03/business/03cnd-stox.html?ref=business 

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