Sunday, February 18, 2007

Sub-Prime plumetting

The Economist

"The Eliot Spitzer of the housing downturn may be about to start his charge." Values of BBB- down 20% in 3-4 months...! No one quite knows in whose hands these little bombs will ultimately explode. The fear is that they all sit in the lap of a few big hedge funds.

Posted by financial planner @ 03:55 PM (534 views)
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8 thoughts on “Sub-Prime plumetting

  • Why is anyone surprised that the “sub-prime” market is about to implode. I have no economic training or background but common sense tells me that lending money to those with a history of defaulting on loans is beyond stupidity. Greed will be the downfall of many US and, in turn, British institutions. I just hope it doesn’t impact on those of us who have taken a more prudent approach. I urge all of you to start spreading your eggs into many baskets – hopefully ones that will survive the coming UK/USA economic downturn.

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  • Financial Planner, good find

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  • @Uncle Chris: YOu are therefore smarter than the GBP300,000 p.a. quantitative analysts (Quants) that infest the City.

    It will definitely impact on everyone. Credit Spreads (like insurance premiums aginst defaults) will widen, making everything more expensive for all.

    The most scary thing is if our Govt is stupid enough to listen to the braying hamsters/sheep who borrowed and spent without thinking of paying the money back. If we “let hese people off”, this constitutes a moral hazard which will sink our country.

    No one in their right mind will lend us money.

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  • “Banks that write mortgages are also contractually obliged to buy back securitised loans if their underwriting is shown to be shoddy or if the loans sour too quickly.” Ouch!

    Why would anybody buy high risk debt when bancruptcy is so easy?!

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  • Ivmreader: Having taught a few “quants” as students I’m not surprised.

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  • “This end of the market took on $605 billion of new mortgages last year, more than a fifth of the total”

    By no means a small sum and with a high default rate, expect substantial fall out.

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  • dohousescrashinthewoods says:

    So what we’re saying, Sovietuk, is that, in a bubble, the more stable, prudent customers stayed at home, while the poor and poorly-educated were whipped into a housebuying frenzy by the Murdochs in an attempt to sustain Gordon’s miracle long enough for him to get into power?

    Except that there seems to have been a falling out between Murdoch’s Ministry of Information and our cuddly Gopher Brown, because the papers are now stirring in the opposite direction.

    Meantime, the global economy looks set to pick up the tab for the unpaid economic pain which has been staved off and growing since the dot-com bust.

    Anyone know of some good agricultural work in, say, Swizerland? Financial services looks set to start eating its own paper money.

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  • I think the problem with the USA and here as well is that credit/debt is now a culture. Can you really blame the individual any more for taking out hugh debts. If less debt was offered to the general public, it is entirely possible that we would all still be buying our toys, but instead credit is offered to a few big spenders, those spenders start buying like there is no tommorrow, inflation goes up, and the next thing, the average joe has to take out debt to maintain his standard of living.

    Asking the individual to realise what is going on in this scenario from the beginning is asking a little much. Isn’t this why we have a finance minister, to undetstand this stuff for us?

    As for the lending practices, its much like politics – as long as its profitable today, you’ll be at your next job by the time the shit hits the fan, and you’ll have a nice bonus and a couple golden hellos for your efforts.

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