Saturday, December 15, 2007

A Rescue That Will Fail

Economist Paul Krugman explains why the Federal Reserve cannot make the current bank crisis go away.

One scary fact from there:
...we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.....The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.