{"id":1336,"date":"2007-12-10T11:21:59","date_gmt":"2007-12-10T18:21:59","guid":{"rendered":"http:\/\/seattlebubble.com\/blog\/2007\/12\/10\/wsj-mortgage-crisis-rivals-sl-meltdown\/"},"modified":"2010-01-18T19:56:12","modified_gmt":"2010-01-19T03:56:12","slug":"wsj-mortgage-crisis-rivals-sl-meltdown","status":"publish","type":"post","link":"https:\/\/seattlebubble.com\/blog\/2007\/12\/10\/wsj-mortgage-crisis-rivals-sl-meltdown\/","title":{"rendered":"WSJ: Mortgage Crisis Rivals S&L Meltdown"},"content":{"rendered":"

The Wall Street Journal has a good article today detailing the extended financial mess that has been brought on by the irresponsible enthusiasm of the now-bursting housing bubble<\/a>.<\/p>\n

The home has long been the bedrock asset of most American families. Now, its value has become the biggest question mark hanging over the global economy and financial system.<\/p>\n

Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.<\/p>\n

In a matter of months, though, much of the promise of the new financial architecture \u2014 together with its underlying assumptions \u2014 has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide. An examination of the resulting crisis shows that it is comparable to some of the biggest financial disasters of the past half-century.<\/p><\/blockquote>\n

It’s not specifically related to Seattle, except for this bit:<\/p>\n

Ken Guy, finance director of King County, Wash., says the county’s investment pool bought short-term IOUs called commercial paper backed by several SIVs because they appeared to be low risk. “We relied heavily on the ratings agencies,” he says. About 10% of his $4.8 billion fund was invested in such paper. When the mortgage-backed assets held by the SIVs suddenly started going bad, some of his investments were downgraded all the way to “default.”<\/p>\n

“How could this have happened so quickly?” Mr. Guy wondered with colleagues. “How could these be downgraded from top to bottom in a day or two?” Such questions have been raised repeatedly.<\/p><\/blockquote>\n

Whoops. So much for the new<\/em> new economy.<\/p>\n

(Greg Ip, Mark Whitehouse, & Aaron Lucchetti, Wall Street Journal<\/a>, 12.10.2007<\/em>)<\/p>\n","protected":false},"excerpt":{"rendered":"

The Wall Street Journal has a good article today detailing the extended financial mess that has been brought on by the irresponsible enthusiasm of the now-bursting housing bubble. The home has long been the bedrock asset of most American families. 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