Subprime problems contained?

Fed's Moskow: Subprime problems isolated

Excerpt:

Problems in subprime mortgages are not spilling over to the rest of the U.S. housing market, which is in the process of stabilizing, Chicago Federal Reserve President Michael Moskow said Monday.

Speaking to students at Tsinghua University in Beijing, Moskow said that after an outright drop in U.S. housing spending - new construction and renovation - of 12.7 percent in 2006, the Federal Reserve judges that the sector is leveling off

"Our best estimate is that it is in the process of stabilizing and that by the second half of the year, housing will start to pick up again," he said.

Moskow said a critical question was whether problems in subprime mortgages spill over to the broader home lending market, leading to defaults that would dampen consumer spending and, with it, the overall economy.

"I don't see that happening. There's no evidence of that happening so far. I think it's a very low-probability scenario," he said.

Comment: I hope he's right!