GSE-110722
Don’t Scare the Children
In its latest financial-stability report, the Fed is at pains to provide dozens of pages of helpful data with the few systemic-risk conclusions the Board ventures couched in careful prose designed to assure critics that the Fed knows well what’s going on without expressing any views that might suggest serious trouble looms or hint that any of what it surveys will alter the Fed’s course in terms of monetary policy, regulatory actions, or systemic considerations. Still, its assessment of residential housing is far more pessimistic than its last report, acknowledging for the first time that, as we warned a while back, seemingly robust amounts of borrower home equity can evaporate quickly in a high-priced market flush with high-LTV mortgages. This is an important early warning sign both for markets and of upcoming actions in areas such as mortgage risk-based capital.