Credit bubbles are really easy to spot, in spite of what American central bankers seem to always say. Here is one easy way to know you are in a credit bubble: any time there are pervasive “no documentation” mortgages. It’s a no-brainer.

Here is a telling excerpt from Doug Noland’s Credit Bulletin:

October 5 - Financial Times (Stacy-Marie Ishmael): “US subprime mortgages written during the first half of the year are going delinquent at the fastest rate this decade, according to a Moody’s report… The average rate of ’serious loan delinquencies’ in the 2007 bonds is higher than those created last year, a vintage considered to be one of the worst-performing ever… ‘The early performance clearly shows that the 2007 vintage is worse than last year’s,’ said David Teicher, co-head of the Moody’s residential mortgage-backed securities group…Almost 6% of subprime mortgages written in the first half and later used to back bonds went into delinquency within three months of securitisation…”

Within three months!! This is like giving money to chimpanzees or something. Are these lenders complete idiots? Memo to central bankers: credit bubble!!

Filed under: Economics