Have sub-prime mortgage crisis turned a corner?

The chief executives of four Wall Street’s biggest banks (Goldman Sachs, JPMorgan Chase, Lehman Brothers, Morgan Stanley) voiced their opinions that the credit crisis is winding down. Mr John Mack of Morgan Stanley said the crisis would probably last only another “couple of quarters”. (The Straits Times, 18 April 2008)

 

Their assessments came about because there had been significant write-downs of asset values linked to the sub-prime mortgage crisis. Is this optimism justified?

 

US’ Federal Reserve Board (Fed) stands ready to act to contain the crisis. Bank of England (UK central bank) is planning to unblock the financial system in Britain.  It was reported that Bank of England will swop £50 billion of government bonds for British banks’ mortgage-backed securities temporarily so as to improve the balance sheets of these banks. This way, British banks with stronger balance sheets can proceed with confidence to extend credits to borrowers. (The Straits Times, 21 April 2008)

 

Since I have written the last post on string of bad news, these are the positive news:

 

  1. IBM’s first quarter net income rose 26% to US$2.32 billion, beating average analyst forecasts.
  2. Goggle’s net income for last quarter rose 30% to US$1.31 billion.
  3. Citigroup Inc posted a US$5.11 billion loss for first quarter, less than analysts’ most pessimistic estimates. Citi is writing down asset values and is reported to sell a portfolio of loans that financed leveraged buyouts in order to clean up its balance sheet. (The Business Times, 19-20 April 2008)
  4. Big Wall Street investment companies are reducing their borrowing from Fed’s emergency lending programme. Fed reported that these firms borrowed on average US$24.8 billion on daily basis for the past week. This was lower than US$32.6 million on previous week. This is the second straight week that the borrowings had reduced. (The Business Times, 19-20 April 2008)

Is it time to be happy with the current economic situations? Has the sub-prime mortgage crisis and with it weak global economies turned the corner?

 

The New York crude oil price has broken US$115 per barrel on last Thursday’s trade. Prices of commodities and staples like rice, wheat, corn, soybean are sky-high and countries are pre-occupied with fighting inflation at home fronts amid slowing economies. It will be wise to wait for second half of this year to see the signs again. But then again stock markets may move 6-month ahead of news that will come on in later part of the year.

 

Written on 4/21/2008 9:34 AM

 

Copyright © 2008, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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