Finance professor Mark Ready at the UW-Madison School of Business agreed that part of Monday’s decline resulted from problems in Europe. “The global economy is starting to look weaker than everyone had anticipated,” said Ready, academic director of the university’s Stephen L. Hawk Center for Applied Security Analysis.
“Some of the European institutions bought securities backed by U.S. mortgages, but there also have been declines in European housing markets,” Ready said.
Don Nichols, UW-Madison professor emeritus of economics and public affairs, said much of the fear revolves around the liquidity position of banks, and that has not yet been solved. Even with passage of the bailout plan, it will take time to assess which of the mortgage-backed securities the banks invested in are worth buying.
“The Treasury Department is only going to buy the good ones, not dump taxpayer money on losers,” Nichols said. “It’s going to take time to determine which have intrinsic value. So we’re in sort of a holding pattern.”