Felix’s high-powered bedfellows

I was quoted in an article by Alen Mattich of Dow Jones this morning. I certainly can’t complain about the company I’m keeping:

Some like James Grant of the respected industry newsletter, Grant’s Interest Rate Observer, have been warning about the wider implications to the credit markets of rising default rates. Collateralized debt obligations, made up of repackaged mortgages and sliced into various grades of creditworthiness, are likely to see defaults higher up the credit scale than investors suspect, according to Grant.

Not everyone is convinced.

Felix Salmon, an economics blogger, points out that you need to separate out the companies making subprime mortgages from the mortgages themselves. While equity in a number of subprime originators has collapsed, it doesn’t follow that debt structured from these pooled mortgages will implode, he says.

That’s the way the Federal Reserve seems to see things. Subprime doesn’t represent a systemic risk to the financial sector. The problem will stay localized.

So there you have it. Me and the Fed, we’re like this.