Sunday, June 24, 2007

*Updated- Unsinkable Junk

A new Economist article (free for everyone) gives another example of what I have been saying for some time- credit bubble. In housing, we've seen uneconomical loans being refinanced on the prayer that someone later down the road will do the same, which has had the effect of depressing the default rate. Corporations have also seen this, with debt being made to riskier companies. The result: "the default rate in 2006 was just 0.5%, the lowest since 1981; Mr Altman says the rate so far this year has been just 0.2%. That compares with a weighted average between 1971 and 2005 of 4.2%." The question isn't if the default rate will rise, but when and by how much.

I'm not the only one who is worried... Bill Gross seems to believe in this scenario as well.

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