At the heart of the near-panic rocking Fannie Mae and Freddie Mac is a
vicious cycle gripping the U.S. housing market. It starts with the oversupply of
homes, which is causing prices to plummet. Falling prices are leading to more
foreclosures, as homeowners have difficulty refinancing their mortgages or
selling their houses. Banks are reluctant to lend freely at a time when home
values keep sinking and defaults keep rising. That is crimping housing demand
further and leading to more price drops and defaults.
This phenomenon -- which some economists call a "negative feedback loop" -- began with subprime borrowers but has
gone well beyond the small segment of borrowers with poor credit. It is now
spreading to the much-larger market of prime borrowers, which forms the bread
and butter of Fannie's and Freddie's mortgage assets.... (article
continues at http://online.wsj.com/article/SB121599431834249563.html)
So we have a name for the phenomenon. Why does this stuff seem some fascinating to me?...
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