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History dictates long road to recovery for US markets

Fannie Mae vice-president and chief economist Doug Duncan has warned 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, Duncan said the US is not going to see a sudden rebound in the capital markets.

Taking the Long-Term Capital Management failure of 1998 as a precedent, Duncan said: “If you look at risk spreads in real estate finance markets subsequent to that, it took five years for them to get back to what they had been.

“Using that as a pattern, we probably have three years to go before risk spreads come back in.”

Duncan said economic policy being discussed in the US is heavily focused on what to do about borrowers.

“There is a lot of conflict surrounding that. The Bush administration commented that it does not want to be spending public money on bailing out speculators or banks that did bad business.

“This resonates with the population. The 92 per cent of people with a mortgage who are paying on time question the appropriateness of bailing out people who, in their minds, should not have got credit in the first place.”

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