Subprime Shockwaves

There's a special report on the subprime debacle on Bloomberg video today. It starts out with Freddie Mac CEO Richard Syron who calls a bubble a bubble, then, on the subject of saving homes from foreclosure comments, "There's nothing wrong with renting".


Robert Shiller also appears in the first segment. Have a look at the second question below from host Brian Sullivan - it's amazing how some people in the mainstream financial media continue to think.

Brian Sullivan: Bob, you and I have talked in the past, you see declines of as much as 50 percent in some parts of the country.

Robert Schiller: Well, home prices have more than doubled in many major cities - even aggregates for the whole U.S. if you go back to the late 1990s, they've doubled. And I don't see that as being explained by fundamentals. If you look at rent or construction costs, they haven't done very much at all. So, mean reversion, we call it. Things got out of line, there's a good chance they'll come back.

Sullivan: What could save it thought? What could be the cure? More liquidity, maybe lower rates?

Shiller: I don't know if we want more .... you see, high home prices are good for people who already own them, but it's the misalignment of the market. They've been building a lot of homes because of the high prices and a correction is kind of inevitable. If the prices are out of line with the costs and long-term demand, I don't think it's something we can fix. I don't think it's going to be a disaster for the economy. It's going to be uncomfortable - we'll go back to where we were five years ago.

The half-hour report goes on to discuss mark-to-model versus mark-to-market for subprime debt and they talk to Marc Faber and Jim Rogers among others.