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BSA conference: Fannie Mae chief economist says 3 years before US sees return of risk spreads

Fannie Mae vice president and chief economist Doug Duncan has warned that it is likely to be three years before the US will see risk spreads come back.

Speaking at the Building Societies Association annual conference in Manchester today, Duncan said the US is certainly not going to see a sudden rebound in the capital markets.

He said he was inclined to think that it will see a long flat bottom for a while.

Duncan said he takes the capital management failure of 1998 as a precedent. “If you look at risk spreads in real estate finance markets subsequent to that it took five years for those risk spreads to come back in to what they had been prior to that time frame.”

He added: “If that serves as a reasonable pattern then we probably have three years to go before we see risk spreads come back in.”

Duncan said the policy being discussed in the US at the moment is heavily focussed on what to do about borrowers.

He said: “There’s a lot of conflict about that. The Bush administration made a comment that they don’t want to be spending public money on bailing out people who were speculators or banks that did bad business.

“This has resonance amongst the population. 92 per cent of all people with a mortgage are paying on time and it raises questions in their mind about the appropriateness of bailing out people who in their mind shouldn’t have got credit in the first place.”

Duncan said that on the systemic side there has not really been a full discussion of the elements of change that need to take place, blaming a “lame duck” administration.

He pointed out that the discussion is now likely to take place under the next President’s administration. “I hope it does; it is very much needed.”


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Unsurprisingly, recent data releases are generally indicating a deteriorating global economy. We believe the environment is likely to remain challenging for risk assets (equities, corporate bonds and property, for example) as the tightening of credit conditions feeds through to consumer spending and economic growth prospects.


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