Annus Horribilis


2007 has turned out to be a difficult year for anyone involved with subprime mortgage lending and most should be relieved that this Annus Horribilis is coming to a close. Seventy billion dollars in write-downs was announced in the first two weeks of December, all related to so called NINJA loans (No Income, No Job, No Asset). Experts expect more losses before the situation normalizes late into 2008.

This week the Federal Reserve Bank plans to auction some USD 40 billion in an effort to lubricate credit markets. Earlier attempts involving several hundred billions of dollars failed to move markets. Some doubt that the puny auction is sufficient to steady a 12.7 trillion dollar industry. It would appear that credit markets have taken on a life of their own, completely outside the Fed's province.

Will 2008 be an Annus Mirabilis? Perhaps not. The current turmoil must play itself out before banks recover from a collective position of distrust.

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