Belated Withdrawal From Risk

[moh malekpour]

http://www.nytimes.com/2008/08/15/business/15norris.html?ref=business

Sometimes what appears to be best for every individual is bad for the group. Now is such a time in the banking business.

Banks that took foolish risks in the mortgage business now want to take no risks at all. A similar risk aversion is growing at Fannie Mae and Freddie Mac, the two government-sponsored enterprises — perhaps government-guaranteed enterprises would now be a more accurate description — that dominate the mortgage market.

JPMorgan Chase started the latest downdraft in bank share prices this week when it said in a filing with the Securities and Exchange Commission that it expected a lot more losses before the mortgage situation stabilized.

And what will it do about that? “In response to continued weakness in housing markets,” it told the S.E.C., “loan underwriting and account management criteria have been tightened, with a particular focus on M.S.A.’s with the most significant housing price declines.”

M.S.A.’s, for those of you not up on the jargon, are “metropolitan statistical areas,” which means areas like Los Angeles and Las Vegas. JPMorgan said it would clamp down on auto loans and credit cards, as well as mortgages, in areas where home prices are falling.

 

[Terrel L. Shields]

the two government-sponsored enterprises — perhaps government-guaranteed enterprises would now be a more accurate description

I assume that means every Tom Dick & Harry on Wall Street who speculated in CDOs. Apparently, our government intends to back every Investment Bank on and off Wall Street.