Look for key phrases in the text which suggest the tone of the policy makers. A mention that the Fed will "closely monitor" developments argues that some on the committee were pulling for an ease or at least an easing bias (economic risk)... -5min before announcement-
The closer rates move to 0%, the higher the risk for the lender. You make virtually nothing on the loan in the fist place, and you have no provision for bad debt. It's not like the borrowers that actually meet their repayments can carry the cost of failed loans at these rates. It's no wonder financial institutions don't want to lend. Either way they can't make money. So we now have an inverted credit crunch. Which could lead to a nasty banking crisis. Which could really cripple the economy, bad. Runningbear
Keep in mind that the loan to value ratios have been increased also. Some cases.. first home buyer etc., loan of even over 100% of the realestate equity is provided. Secondary mtgs, equity lines of credit are based on already inflated appraisals. Most loans are on variable interest rates, and the debt service ratios are already very high. (the higher you can get the more house you can buy but the riskier it is for the lender and you) So what happens when real estate values start dropping even slightly? The security for the loans becomes even smaller and in many cases way below the required limits. If on top of that you add increase in interest rates, then the same household income can no longer service the same old debt. Will the banks call the loans? If it gets way out of hand, this could really collapse like a house of cards. Time for another R.T.C. and a taxpayer bailout? Josh
Vinny, can you please quote me saying that there will be or will not be a rate cut? I never predicted anything. Either a cut, increase or stay pat. I only spoke about what to do under different scenarios. That is what traders do. Oh but I forgot! You're not a trader. You take your marching orders from a website. Oops! Sorry.