Nobody knows how much they're worth - it's like a huge batch of canned food with a sprinkling of salmonella - nobody knows which ones are infected. You could eat it every day and be OK - or the first can might kill you. Nobody knows which mortgages are going to default. So would you buy any?
This is going to play out for a couple of years.
Foreclosures are up, and although there's lots of talk about making money out of the foreclosures (see informercials at 2am ...) there's no equity in most of the properties bought with subprime loans. In the SF Bay area, experienced foreclosure buyers are being very wary, and properties are failing to reach reserve. This spells o-h-f-u-c-k for the banks - the whole point of collateral is that you're supposed to be able to get your money back. Duh. http://www.csmonitor.com/2007/0730/p13s01-wmgn.html
Blight is already setting in: http://www.insidebayarea.com/trivalleyherald/localnews/ci_6729999
So it's not as if the underlying asset at the very end of this chain - the house - is keeping its price. All this was forseeable. Per an HSBC report on house prices.
"We suggest that about half of the US housing market is frothy and that this ‘bubble zone’ may be overvalued by as much as 35-40%, after taking into account low interest rates and tax advantages. Current valuations imply a large permanent reduction in the risk premium and/or a sizable step up in future capital gains, not all of which, we think, is justified."
They go on:
"The ‘bubble zone’ accounts for 50% of US GDP, or over USD6trn, nearly the size of the German, French, and UK economies put together. In other words, it’s big. Therefore, when these housing bubbles begin to deflate, it is likely to have substantial macroeconomic consequences."
http://neweconomist.blogs.com/new_economist/files/HSBC_frothfindingmission.pdf
This was back in Jan 2006 and HSBC still continued to dig themselves deeper into the doodoo. Duh again.
Check what your pension fund is up to - they've been gobbling up the riskiest portions of this stuff (aka in the industry as 'toxic waste') to make up for their losses during the tech boom. Bathroom tissue might be a better word.
In June the lender I worked for was doing about 900 loans per month. My job was taken away at the end of July - when I dropped by last week, 2/3 of the company was gone, satellite offices closed and my remaining buds (or rather, the buds of mine who were still there ...) told me they had done 3 loans in August so far.
How this can not affect the rest of the economy, sooner or later, eludes me.
Steve
--- joanna <123hop at comcast.net> wrote:
> See
>
> http://www.buffalonews.com/145/story/148833.html?ref=patrick.net
>
> ___________________________________
> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>
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