Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.
Yes. It includes corporate bonds.
The loans could be packaged in securities. This is debt. It includes all debt. Now, whether it is repackaged into an MBS, it would be there. It wouldn’t be if it got in a CDO or something.
In that sense, it does represent a risk that you are going to get dynamic feedback between losses and household spending and lending—it is a high risk. So I wouldn’t say “comforted.” I think we were saying that this is beyond probably what our models could respond to ...
No, I understand. I think the third alternative gets beyond what most are expecting at this point.
One issue here is whether you want to do it relative to current capital cushions. Banks can raise capital. If they anticipate that they will need to raise capital, they can cut dividends further. I haven’t done that sort of exercise. One way to think about this is that ...
They have that much of the business sector and that much of the mortgages, so that pretty much covers it.
In mortgages, 20 percent is actually probably a pretty good estimate.
Yes. We have not distinguished between who is holding the securities— banks or investors—so mortgages would include the 20 percent or so that are commercial banks, and it would also include those held by investors in the primary form.
We have revised this forecast up quite a bit since the first time we looked at this maybe in June or August, in part because of lower house prices and tighter credit conditions. The model requires as inputs defaults and prepayments, and the prepayment rates have been fairly slow but ...
As discussed earlier, Treasury yields and stock prices are down sharply since the December FOMC meeting on news that indicated greater odds of a recession and large writedowns at financial institutions. As shown by the blue line in the top left panel of exhibit 6, the fall in stock prices ...
That’s right, right now.
It is around 9 percent. If you get on the Internet and try to find a subprime fixed-rate loan, it would be about that. We can’t find an official series, but roughly 9.
We think there is probably $900 billion to $1 trillion in adjustable- rate subprime mortgages outstanding.
If we had started this series in the early ’90s, this would be the high. We have the stock market bubble of 2000 in here, and it has come off, but it is 5½. Even at the end of the projection period, it is 5½ times disposable income. That is ...
By dollar it is very similar.
Subprime adjustable-rate loans are about 9 percent of outstandings, and subprime fixed loans are another 5 percent of outstandings. That would be 9 percent of the $10 trillion in total mortgages.
The red lines are subprime.
There is $10 trillion in mortgages outstanding.
The serious delinquency rate is for the pool of adjustable-rate subprime loans, and they represent about 9 percent of the outstanding mortgages.
The next four exhibits focus on financial conditions in the corporate and household sectors. As shown by the black line in the top left panel of exhibit 6, operating earnings per share for S&P 500 firms for the second quarter are currently forecasted by analysts to be up about 5 ...
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