Doublespeak

Repeated assurances from Fed officials about the contained nature of the sub-prime debacle are starting to sound hollow. Actually for those who were paying attention they always did. On Wednesday Electronic retailer Circuit City Stores Inc. (CC) issued a downbeat forecast for 1H07 citing "macroeconomic headwinds" such as higher energy prices, the housing market and the volatility in subprime lending.

Also on Wednesday head of the Dallas Fed Bank Richard Fisher remarked:

"While the subprime damage is largely contained, I do not mean that the market will or should refrain from punishing those who neglected time-proven rules of prudence. Nor am I suggesting that the neglect of prudent practices has not bled into other types of credit -- such as the Alt-A market,"

"the housing markets may "feel some short-term pain" because 40% of home buyers last year were nonprime, either subprime or Alt-A loans. This pain will make it "less clear whether housing construction has bottomed and how long the housing downturn may last."

So basically the sub-prime problem is contained but we can't tell how contained it is. It's all about degrees. An interesting question might be; at what point is it considered not to be contained? After his reassuring tones Fisher then asked his audience of Texas mortgage Bankers for suggestions of reasonable measures to make sure the problems in the subprime sector do not lead to "systemic contamination" in the financial sector. One wonders what Fisher would be like as an MD. "Well sir we think your cancer is contained but do you have any suggestions on how we might stop it from spreading?"