Mortgage Financing Blog

aka waiting for September 18th, 2007

Let me explain!

A term that recurs repeatedly in the day’s market analysis is the “Minsky moment” which is the time when, according to (link to full analysis) George Magnus of UBS Warburg:

The final ‘moment’ is where the prospect (or fact) of a deflationary credit contraction forces the monetary authorities to relax monetary conditions and lower interest rates in order to ensure the integrity and functioning of ‘good’ lenders and borrowers and avert, if possible, the likelihood of contagion into income, spending and hiring and firing decisions in the real economy.

Hyman Minsky was an economist who studied with Joseph Schumpeter of “creative destruction” fame, who posed several theorums about credit cycles and the behavior of debt markets in cycles, which of course are one of the causes of business cycles.

Take a look at this MSNBC article regarding foreclosures in America. They suggest that 1 in 673 homes in all of the country is in foreclosure. I just have to say it. This is a classic case of markets behaving irrationally at the moment. Unfortunately, as Keynes might say, “Markets can remain irrational longer than you can remain solvent”

Hello to all of my faithful readers. No, I have not ignored you, simply been caught in the grinder that is moving offices!

Without further adieu, I would like to post a story for all of those whose interests in structured finance is limited to Visa or Mastercard that explains in a great nutshell why the world’s credit markets are in an uproar. Another reason, is of course the bursting of the real estate bubble which has left Carlton Sheets style investors who are now left high on debt and low on equity.