The Sub Prime Fallout Continues, with More to Come

Posted on 12 August 2007 by Ray Boulger

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I thought this selection of comments from the weekend papers on the credit crunch following the sub prime mortgage problems in the U.S. were particularly worth repeating:

 

Siobhan Kennedy in The Times – 11 Aug

For Felipe Deluna, a native Mexican who moved to America when he was 19, it meant that the 1 per cent interest he was paying on his mortgage quickly became 7.7 per cent. And Mr Deluna, who earned $2,000 a month, was facing mortgage repayments of $4,500. Like thousands of other homeowners in similar circumstances, it didn’t take long before Mr Deluna ran into severe trouble and was forced into a distressed sale of his home.

Read the full article HERE

Irwin Stelzer in The Sunday Times – 12 Aug

One trader says that until now all he worried about is what he didn’t know. But the BNP Paribas discovery that it could not determine the value of some of its funds came only a few days after its chief executive, Baudouin Prot, assured the markets that the bank’s exposure to the problems of the sub-prime mortgage market was “absolutely negligible”. So traders now worry about what the people who should know in fact don’t know.

Read the full article HERE

 

Independent on Sunday – 12 Aug

Allan Meltzer, a monetary economist at Carnegie Mellon University, who is writing a history of the Fed, said "The people on Wall Street are making a lot of noise because they don't like to lose money," he says. "But it would be a huge mistake to change policy to rescue a bunch of people who made stupid mistakes." In fact, argues Meltzer, speculator losses could clean out the financial markets and make them healthier. "Capitalism without failure is like religion without sin," Meltzer says. "It doesn't work."

Read the full article HERE

 

However, the best article I have seen in terms of explaining how the crisis has been caused was by Gillian Tett, Paul J. Davies and Norma Cohen in the FT, and entitled "Structured investment vehicles’ role in crisis." If you want to understand this market this article is an excellent read.

 

Category: House and home, Interest rates, Mortgages, Property market

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