Saturday, March 10, 2007

Here we go again.

Most of the readers of this blog should be old enough to remember the beginning of the first Bush II depression. The bursting of the technology bubble amid all the happy talk and then the revealing of all the sordid details, culminating in Enron and WorldCom. According to Gretchen Morgenson, we are on the way to a reprise, this time using mortgages.

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago...

...Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers — known as subprime mortgages —recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.

And her article goes on to disclose some of the dogs breakfast that is the mortgage backed securities market. It is not a pretty sight. This one will probably hit us all, right about the time that China dumps its Trillion dollar US Treasury holdings.

Comments:
Morgenson is a hack.
 

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