Jim Haughey is the Chief Economist for Reed Construction Data.

Jim has over thirty years experience as a business economist, including twenty years monitoring the construction market. He has previously worked in government, corporate and consulting roles and has taught at the University of Michigan, Ohio University, Michigan State University and the University of Massachusetts. He has a Ph.D. degree in economics from the University of Michigan.

Construction Industry Forecasts

Notes from Jim Haughey

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Credit Crunch Resolution Continues
Jim Haughey, RCD Chief Economist
Mar 20, 2008

Trust is gradually being restored among the major world financial institutions and enough liquidity has been provided by central banks to cover most of the capital destroyed in the subprime mortgage mess. The situation is not yet back to normal.  There are still some investors though to have questionable assets - maybe or maybe not enough to cover their obligations.  The balance sheet clean up and the restoration of trust will continue well into the year and will act as a restraint on construction.  Reed Construction Data believes that the availability and cost of credit is no longer the major constraint on nonresidential construction starts.  That role is now held by doubts about the amount of space needed in a slipping economy.

In its boldest action yet, the FRB sold off Bear Stearns for a penny on the dollar to JP Morgan and effectively took $30 billion in assets of dubious value onto its own books when Morgan refused to take them.  Bear Stearns got appointed “fall guy” for investment banking because they played a major role in originating the subprime market and held so much bad paper that they would have been liquidated by their creditors, possibly within days. The FRB avoided the agony- and panic – of dealing with Bear Stearns’ customers and suppliers one by one as the investment bank failed to meet loan commitments to customers and repayment demands from credit suppliers.

Several hedge funds recently collapsed, finding themselves holding too large a share of bad assets to write then down to current market value and survive.  More hedge funds can be expected to take big write-offs soon.  Some will survive and some will be rolled into other funds. The demise of a hedge fund destroys the capital of its investors.  We will probably hear about several private investors and some institutions that have to take outsized capital losses and can no longer do what they used to do.

 

Billionaires may have to cut back on personal expenses.  But they will also have fewer funds for venture capital. Institutions may have to cancel facility projects or raise their tax rates and service fees.

 

 

Jim Haughey Post Archive

03/12 - Why are diesel fuel prices rising so fast?
03/07 - The recession has begun
03/05 - How to Read Market Data During a Cyclical Turning Point
03/04 - Construction Spending Decline Accelerates
03/03 - Why are mortgage rates rising when market interest rates are plunging?
02/28 - Predatory Lending Fix Threatens Mortgage Market
02/26 - Southwest Florida Real Estate Tour
02/14 - How the Subprime Mortgage Mess Began
02/06 - Rebates Revisited
02/04 - Recession Probability Over 50%
01/30 - Congress Plans Stimulus to Slow Economic Growth
01/22 - Credit Crunch Returns
01/04 - Weak jobs reports set off another confidence crisis
12/21 - Christmas Cheer for Construction Funding
12/19 - FRB Acts Free Up Bank Funds for Lending
12/13 - Mortgage Applications Jump
12/05 - Treasury Mortgage Fix Plan is a Bad Idea
11/30 - Home Sales Keep Falling
11/28 - Sinking Confidence Restrains Construction Outlook
11/05 - Main Street Vs. Wall Street
11/02 - Good Economic News Will Cushion the Housing Decline
11/01 - Oil Prices Again Threaten Construction Activity
10/25 - Location Preferences Now Being Revealed in the Buyers’ Market
10/23 - Subprime Default Hot Potato Still Being Tossed About
Page 13 of 13 pages

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