For immediate release: December 24, 2008
Texas Subprime Mortgages, Financial Crisis, Mexican Economy and Regional Outlook Focus of Dallas Fed Report
DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy features articles on the Texas subprime market, current financial crisis, and Mexican and Texas economies.
Find the November/December issue at: http://dallasfed.org/research/swe/index.html
Although Texas homeowners have relied more heavily on subprime loans than borrowers nationwide, the state thus far has experienced fewer defaults and foreclosures, according to senior economist Anil Kumar in “Why Texas Feels Less Subprime Stress than U.S.”
Troubles with subprime loans aren’t as severe in Texas, as it has grown faster than most other states in recent years, and housing prices have held steady. Texans also tend to have more equity in their homes and rely less on exotic mortgages, according to Kumar.
However, the Texas housing market has weakened in 2008, signaling less healthy economic times ahead.
“The financial turmoil and credit crisis, coupled with low energy prices, have made it more likely that the region will follow the nation in an economic downturn,” Kumar said. “This suggests that Texas will inch closer to the nation in subprime delinquency.”
In this edition’s “On the Record” discussion, President and CEO Richard W. Fisher points out that the “truly new part” of the current financial crisis is that the “mathematization of risk” replaced sound judgment.
“An immense array of statistical gadgetry wielded by a new generation of quantitative minds, themselves emboldened by unprecedented computer power, managed to squelch the wisdom of longtime bankers and seasoned financiers,” he says. “Our problems are not new. But they have been magnified by a certain type of hubris that viewed statistical modeling as infallible.”
Fisher says the crisis should result in a “back-to-basics” approach to banking and that, while the current correction is painful, it also will bring new opportunities.
In “How Much Will the Global Financial Storm Hurt Mexico?” senior research economist and advisor Erwan Quintin and business economist Edward Skelton say Mexico is much better equipped to deal with economic shocks today than at any point in recent history.
Nevertheless, the rate of growth of economic activity in Mexico is expected to slow markedly over the next few quarters as a result of the current financial storm.
“The full impact of the global turmoil on Mexico will depend on how quickly the world financial system can return to normal and on the depth and length of the U.S. manufacturing contraction—factors that are eminently difficult to predict,” the authors write.
The Texas economy is faltering as 2008 comes to a close, according to the latest regional update; however, the state likely will continue to outperform the nation.
Senior economist and policy advisor Keith R. Phillips and research analyst Mike Nicholson report that job growth has slowed and unemployment has risen. Continuing declines in oil and natural gas prices could erode the state’s relative economic strength, they write.
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