03-24-07, 09:20 PM
I like Grant, wish I could afford his publication. Good find, jk,
He mentioned a report by Ivy Zellman of Credit Suisse, which I haven't read yet, but Grant apparently thought highly of it.
Here is a link to it, provided from this week's piece by John Mauldin.
03-26-07, 11:30 PM
Here's some more of Grant's thoughts:
Traps of easy credit. Reckless lending to blame for mortgage woes. By James Grant COMMENTARY 3/25/07
Lenders are herding creatures. They tend to think the same thoughts at the same time. In consequence, credit ebbs and flows in cycles. Imagine a bankers' migration between point A, which we may call "No way," and point B, which we will designate "Come and get it." Just such a movement got under way in 2002-03. At the start of this journey, risky credit instruments -- junk bonds, for example -- were virtually unmarketable. Lenders feared the fallout from the burst stock-market bubble. Before long, however, lenders and borrowers regained their courage. But now, having long tarried at "Come and get it," they are reversing course for "No way." The migration has only just begun.
If I were the head of state of one of our trading partners, I would be asking myself if these "major innovations" were as wholesome as they used to seem. Deciding not, I would command my minister of investments to unload U.S. mortgage holdings. And I would imagine that I would not be the only head of state to whom this thought had occurred.
Naturally, Congress will want to know whom to blame for this reckless lending and borrowing. The usual suspects come to mind: the Fed for pushing interest rates down to half-century lows, the bond-rating agencies for sugarcoating the risk on mortgage-backed securities and the lenders who competed with one another to see who could operate in defiance of the greatest number of canons of prudent credit practice. It was Congress itself that eliminated tax deductions on interest for nearly all consumer debt -- but let them stand for residential mortgages.
But our lawmakers should not forget to call human nature to account. In 1886, 40 years before the birth of former Fed chief Alan Greenspan, the Great Plains was the scene of a terrific real-estate boom, financed by the most reckless kind of lending. There was no Fed, and there were no rating agencies, just lenders and borrowers taking leave of their senses. They returned to them, eventually. They always do.
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