"What kind of dope are you smoking?" queries a faithful Capital Commerce reader, taking issue with my outlookas outlined in the recent posting "Subprime Scare Is March Madness"that problems in the subprime mortgage market will not lead to a recession. Yet I am going to stick to my guns on this one. Let me point to a new study by Christopher Cagan, director of research at First American CoreLogic, a Santa Ana, Calif.-based real-estate information firm. Cagan finds the following:
"Under the main scenario, the study anticipates 1.1 million foreclosures spread out over a total period of six to seven yearswhich represents 13 percent of the adjustable-rate mortgages originated through purchase or refinance from 2004 to 2006constituting $326 billion of debt. After foreclosure and resale, it is projected that about $112 billion will be lost to remaining equity, lenders, and investors over several years. These losses represent less than 1 percent of the total mortgage lending projected for that period."
The analyst concludes that foreclosures "will not break the national economy or the mortgage lending industry." So let's take a step back and see where we are: oil prices back below $60, jobs and income expanding nicely, a nonlethal housing downturn, long rates down more than a quarter point since the end of January, tax receipts pouring in and bringing down the budget deficit, and exports up, stabilizing the trade deficit. Not bad at all.
More on Greenspan, Free Trade, and Inequality
Donald Boudreaux, chairman of the economics department at George Mason University and coauthor of the always entertaining and insightful Cafe Hayek blog, comments on my recent posting "Greenspan's Inequality Fix":
"James Pethokoukis is correct that "liberalizing trade for professional servicessuch as medicine and lawmight not only suppress the dramatic income increases in those professions, as [Alan] Greenspan suggests, but also make them more affordable" . ... Opposition to state licensing has a long and proud pedigree. Writing to William Cullen, MD, in 1774, Adam Smith argued that licensing is a monopoly privilege that lowers the quality of medical care by artificially keeping many good physicians out and by certifying some quacks. According to Smith, "That in every profession the fortune of every individual should depend as much as possible upon his merit, and as little as possible upon his privilege, is certainly for the interest of the public.;"