A Short History of the Credit Boom & Bust

Run don’t walk to read the WSJ page one article on How Credit Got So Easy And Why It’s Tightening.

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Kudos to Jon and Hilsenrath, and Greg Ip, who has on occasion been on the receiving end of TBP criticism.

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WSJ: Cheap Money Extends Credit and Risk Expands to Match Charts
click for public WSJ

Wsj_chart_hilsen_2

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Source:

How Credit Got So Easy And Why It’s Tightening
GREG IP and JON E. HILSENRATH
WSJ, August 7, 2007; Page A1
http://online.wsj.com/article/SB118643226865289581.html

What's been said:

Discussions found on the web:
  1. dblwyo commented on Aug 7

    Excellent – glad to see you posted the article as it’s as nice a survey as is around. Lahart’s AofTape column on the Wiley Coyote syndrome is well worth a read as well. Particularly grateful for the charts which put a lot of the total picture in a few pictures.
    The one thing not covered is the corporate side of things, i.e. the scope & scale of buybacks which have re-leveraged balance sheets thru borrowings. We may be as exposed there as elsewhere plus with a downturn coming corporations have put themselves in a very vulnerable position.

  2. Pool Shark commented on Aug 7

    Justin Lahart stole my Wile E. Coyote metaphor!

    I guess this just proves he reads Barry’s blog.

  3. test commented on Aug 7

    ‘Cheap Money’ policy? not cheap enough. Jumbo Jet Ben will make sure it is cheaper in comming months or years by sacrificing dollar. just spend the money before it becomes useless

  4. Neal commented on Aug 7

    You nattering nabobs of negativism, just listen to Moodys (from Bloomberg):

    “Ratings provider Moody’s Investors Service said on a conference call that the fallout from subprime-mortgage losses will be “manageable” and the impact on investment banks “modest,” according to T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York. Moody’s did not let reporters listen to the call.”

  5. dblwyo commented on Aug 7

    Spiro, sorry, I mean Neal. Where’s Pogo when we need him. And what about all the other assets classes leveraged up thru the same carry to cash to leverage ‘structure’ of debt instruments ? Buyouts and buybacks, oh my.

  6. Fred commented on Aug 7

    It was classic (amusing) to see Bill Gross fess up that he bought the Chrysler bonds he maligned a short while ago…which accelerated the spread widening.

    Him speak with fork tongue.

  7. MarkTX commented on Aug 7

    Yup….

    no rate cut…no big news….

    looks like a last hour rally is in store to

    get the point across.

    200-300 points for the dow???

  8. MarkTX commented on Aug 7

    damn…

    looks like by typing my last post….

    I MISSED THE RALLY!!!!!!!

  9. michael schumacher commented on Aug 7

    yet another “rally”…….so obvious that it’s not a free market….

    and so actionable as well…..

    Ciao
    MS

  10. MarkTX commented on Aug 7

    MS…

    that is a damning if not confusing article.

    and you have to love that devil of an

    overused statement

    “if wages rise too quickly they can spur UNWANTED inflation.”

    NSS (No SH** Sherlock)

    or I guess…we want inflation…just not wage inflation???!!!!

  11. zell commented on Aug 7

    Exactly. They do want inflation- asset inflation- of any variety, but not wage inflation.

  12. John commented on Aug 7

    Is it just me or has the Volatility over the last couple of sessions been due PRIMARILY to the weakening, and now strengthing, of the Dollar vs. Yen?? When the dollar took off against the Yen yesterday, the market soared. I’m also curious as to who (has been) buying Treasuries, especially the 10 year with a yield of ~4.7+% with yields on CD’S and Money Markets in many areas offering 5%, or better…

  13. halbhh commented on Aug 7

    The Fed said just what it should. Credit will unwind, and it could indeed start getting rather more ugly, at which point the Fed will say what it should at that point, indicating it won’t let the financial system (mortage markets, etc) collapse.

    So it’s the best possible management by the Fed, IMO. And, in response, I prudently sold off some dangerous longs after the statement.

    Most everything predicted here (within reason!) will happen, just not in quite the overly melodramatic way it’s suggested at times.

    But more….the future is starting to look brighter — we’re going to take our medicine, and so the 3rd derivitive is going the right way soon in my esitmation.

  14. Winston Munn commented on Aug 7

    Neal wrote: “You nattering nabobs of negativism, just listen to Moodys”

    You mean, like Bear Stearns listened when told, “Sure, these are AAA.”?

  15. Winston Munn commented on Aug 7

    I have commented before that the greatest risk to national security is not from Al-Qaeda but from our own debt. Now China confirms my view:

    “By Ambrose Evans-Pritchard
    Last Updated: 1:48am BST 08/08/2007

    The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

    Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

    Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.”

    Credit crunch – how about collapse?

    “Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

    “The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles,” he said.”

    Not satisfied with Blackstone, China now wants to dictate U.S. legislation, as well.

    Any bets those new tarriffs will be killed in committee?

    Welcome to the People’s Republic of America.

  16. wunsacon commented on Aug 8

    Like banana republics indebted to the IMF, the US owes China a lot of money. How do we convince them to keep investing in us? What ChIMFa — trademark alert! — obligations should/must the US agree to? Should we cut social programs or defense? Or both?

    After paying interest on our debt, what should we spend our discretionary income on? Let’s model our republic after an earlier one:

    Roman Senator: All fellow members of the Roman senate hear me. Shall we continue to build palace after palace for the rich? Or shall we aspire to a more ~noble~ purpose and build decent housing for the poor? How does the senate vote?”
    Entire Senate: F*** THE POOR!

    > the greatest risk to national security is not from Al-Qaeda but from our own debt

    My proffered answer is: electing incompetent politicians.

  17. Francois commented on Aug 8

    “Not satisfied with Blackstone, China now wants to dictate U.S. legislation, as well.”

    Hmmm! BTW, Congress is trying to dictate to the Chinese how to manage their monetary policy. Why in the world should they be expected to tolerate that is beyond me.

    If I was the Chinese Premier, you can bet your last n’gwee that I’d do the same. I’d say to Congress: Yo talkin’ to me? YO TALKIN’ TO MEEE?

    They’re doing it because all the fuckwads in D.C. chose political convenience, sided with corporate over the citizenry and grabed bundles of campaign moolah from Wall Street Big Money over national interest.

    Francois

  18. brion commented on Aug 8

    ..last line in that video, “we oughta be able to handle it”.

    what an ineffably sad thing to say….

  19. equipmentleasing commented on Aug 8

    “Not satisfied with Blackstone, China now wants to dictate U.S. legislation, as well.”

    hmmm… well this is something I’d love to watch about!!!