My Two Cents

Pimco on Sub-Prime

Chris Farrell Mar 22, 2007

Paul McCulley, managing director at the giant money management company Pimco, writes an astute newsletter on Fed policy at www.pimco.com. (Bill Gross, his boss and legendary bond investor, writes a fascinating, witty investment column.) His latest delves into the subprime market.

McCulley notes that the housing market during the boom years was dependent on a traditional source of buying power: The first time homeowner. But adding to the buying pressure was a relatively new phenomenon: The first time speculator. “As the bubble was forming, riding on first-time homebuyers with first-time access to credit on un-creditworthy terms, and first-time speculators riding the same with visions of bigger first-time fools to take them out, all looked well,” writes McCulley. “Such is reality presently in the U.S. residential property market, which has flipped from a sellers’ market on the wings of buyers with exotic mortgages to a buyers’ market of only the creditworthy.”

Although housing market woes doesn’t mean recession, he does expect that the Fed will eventually wake up to what’s going on, and start easing. Let’s hope that day of reckoning is sooner rather than later.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.