Perhaps the buy on dips confidence index has slipped lately because of negative news concerning credit markets, notably the US sub prime mortgage market, which has increased anxiety about the fundamental soundness of the economy.

What started with subprime mortgages spread to all collateralized debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi trillion dollar credit default swap market.

The state is an epicenter of the housing bust and the foreclosure crisis.

Losses are spreading from sub prime to near prime and prime mortgages, commercial mortgages, and unsecured consumer credit (credit cards, auto loans, student loans).

However, beyond the mortgage market, other huge risks are lurking, especially in the US financial system credit cards, car loans, and presumably a few other things.

But, in America s home mortgage market, this is much less common.

They are likely to place much greater emphasis on consumer lending, especially mortgages and credit cards.

MOSCOW Skeptics of financial liberalization and innovation have been emboldened by the crisis in the world s credit markets that erupted in mid 2007, when the problems with sub prime mortgages first appeared in the United States.

Small wonder that when the sub prime market blew up, these markets also froze.

In Mexico, the market for new low and middle income housing has grown rapidly, thanks to the creation of a market for residential mortgage securities in 2003.

Some, observing the crash of the sub prime mortgage market, say, Don t worry, it is only a problem in the real estate sector.

But that is precisely why a government managed mortgage market is dangerous.

Moreover, the US housing market appears to be stabilizing....Overall, the US mortgage market has remained resilient, although the sub prime segment has deteriorated a bit more rapidly than had been expected.

His reappearance comes just as the credit bubble fueled by the sub prime mortgage boom is about to burst, triggering the worst financial and economic crisis since the Great Depression.

Using bank credits to speculate in equity and housing markets is still mostly forbidden.

Credit risk in the mortgage market is being assumed by the government, and market risk by the Fed.

Because banks would need to accept higher risk, a secondary market for mortgages is necessary.

Its banks and financial institutions were not tempted to buy the mortgage supported securities and credit default swaps that ruined several Western financial institutions.

With the government assuming credit risk, mortgages become as safe as government bonds of comparable maturity.

The current crisis of the conservative cycle reflects the massive build up of bad debt that became apparent with the sub prime crisis, which started in June 2007 and has now spread to the whole credit market, sinking Lehman Brothers.

One sure way to reduce the savings rate in China would be to develop an American style mortgage market there.

A year ago, however, with the subprime mortgage meltdown of August 2007, I became certain.

But non prime borrowers about one third of US households do not have much access to mortgages and credit cards.

The mortgage crisis and the credit crunch have led to bailouts for the banks and the nationalization of housing finance and insurance.

The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans, and other forms of consumer credit.

As mentioned earlier, the comprehensive reform includes the following instruments Credit Institutions Act Act on Savings and Loan Associations Act on the Retirement Savings System Federal Act on Guarantee Institutions General Act on Mutual Insurance Institutions and Companies Securities Market Act Act on Investment Firms and General Act on Credit Organizations and Related Activities.

That time is over, as the breakdown of the American mortgage securitization market has shown.

This brings us back to the US Treasury s plan to spend hundreds of billions of dollars to unclog the sub prime mortgage market.

The fact is that the European economy has been affected more by sub prime mortgages in the United States than by a carbon price in Europe.

Hence, the Fed s intervention in the housing market is really an intervention in the government bond market the purported switch from buying mortgages to buying government bonds is of little significance.

Who wouldn t want credit markets to serve the cause of home ownership? So we start by introducing some real competition into the mortgage lending business.

But a slow exit risks creating a credit and asset bubble as large as the previous one, if not larger.

In the US, reviving the credit markets requires stopping the mortgage defaults driven by negative equity.

In fact, the ideological bias of Europeans against CDS might be beneficial in the long term for the development of a better market for CDS, and for derivatives in general.

An interest rate rise might take the heat out of the mortgage market, but it will also chill the rest of the economy.

It is thanks to the spike in the CDS market that the Greek government tightened its budget and improved its fiscal position.

The stock market dropped sharply. Home prices fell 40 , completely wiping out the equity of one third of all homeowners with mortgages.

America s mortgage market remains on life support the government now underwrites more than 90 of all mortgages, and President Barack Obama s administration has not even proposed a new system that would ensure responsible lending at competitive terms.

There are good reasons, however, to be skeptical that this will be the panacea that credit markets are (literally) banking on.

The main problem is that the flow of foreign credit has been impaired because US mortgage backed securities and the derivatives based on them have become nearly unsellable everywhere.

Even if a bailout plan were implemented quickly which appears increasingly unlikely there would be some credit contraction.

The staff saw the relaxation of lending standards in the US mortgage market, but noted that borrowers at risk of significant mortgage payment increases remained a small minority, concentrated mostly among higher income households that were aware of the attendant risks.

Credit Where Credit is Due

If nothing nasty happens losses on mortgages, commercial real estate, business loans, and credit cards the banks might just be able to make it through without another crisis.

The entire sub prime market is largely a decade old innovation the word sub prime did not exist in any language before 1994 built on such things as option adjustable rate mortgages (option ARM s), new kinds of collateralized debt obligations, and structured investment vehicles.