Mortgages Hurting Economy

Cincinnati Enquirer (03/03/08); Blackstone, Brian
Mortgage credit losses will reach about $400 billion over the next couple of years, with leveraged institutions such as banks, hedge funds, thrifts and government-sponsored enterprises taking about half of the hit, according to a paper written by several Wall Street and academic economists that was presented to a recent U.S. monetary policy forum in New York. The problems in the mortgage market could result in a decline of 1.3 percentage points in the overall U.S. gross domestic product over the following year, the paper concluded. The estimate "is not implausible," Federal Reserve Gov. Frederic Mishkin said during the discussion on the paper last week but added "there are reasons to be suspicious of it." Mishkin acknowledged that the economy will take a hit from the housing crisis, however, but the financial market believes the Fed will respond by keeping interest rates low.