Hi all,

Here is a brief but very interesting snippet on the subprime situation and how large it is compared to the overall financial markets.

http://tinyurl.com/2mkwhp

Yes, this won't be a fun process, but I don't think this will really hurt the economy as much as people think. The housing market correction has not had a huge impact on the economy, and I don't think this subprime situation will be a disaster for it either. Given how much people have been worried about the economy over the past year or so, I'm surprised they don't acknowledge the fact that despite the weak housing market growth still came in at 3.4% in the 2Q. People aren't seeing how strong this economy is, in my opinion. I know I've been saying this an awful lot lately and apologize to those who are getting tired of it, but the simple fact is that our economy is strong right now. I'm not saying there are negative aspects right now, there always have been and there always will be, but what I'm saying is that this economy should be able to handle it. There are so many aspects behind the economy that it simply isn't logical to look at two negative aspects (housing and subprime). There are many other negative aspects out there, I know, but these two have especially been blamed for an upcoming economic downturn and some have even been talking about a depression. People are acting like this economy is a weak duckling that is just waiting to fall.

I think the worst we will see because of housing and subprime is 2-3 quarters of slow growth like we saw in the 1Q. I think there's a good chance we will do better than that, but it's good to be cautious.

Anyway, I certainly agree that subprime won't be anything fun to get through, but I don't think it will be as much of a drag on the economy as many people think. It simply isn't that huge compared to the U.S. financial market. It is big, but not that big. Unless the estimates in the link above are completely low and off, which they very well could be, I don't see how this will put the economy into recession like Greenspan and others have said. Maybe I'm missing something (probably the case), but I simply don't think this will have as much of a negative impact on the economy as people are saying.

Best,

David K