A blog entry in the original sense: a personal journal of notable events.
- My jaw dropped when I saw that Mr. Bernanke asked lenders to forgive part of mortgage loan debt. His reasoning is that home equity would thus be bolstered and homeowners would have less reason to walk away from their upside-down homes (jingle mail). I don't think a central banker has ever done this before and it shows how deeply he is worried. As I have repeatedly said, his biggest fear is a "liquidity trap" and his suggestion shows we are getting dangerously close to it.
- Municipal auction rate bond failures are at 70%. Translation: the credit crunch is spreading out to envelop the "official" sector of the credit market, i.e. these are government bonds we are talking about. The cause is quite simple, in my opinion: debt destruction - current and upcoming - has removed a lot of so-called liquidity from the financial system, i.e. there is less money to go around. Add the ongoing zero/negative personal saving rate for Americans and we are left with yet another financing hole. I wonder if foreigners will keep filling it, or eventually throw in the towel and look for better things to do with their savings.