Subprime problem not going away
Posted by Frugal on June 22nd, 2007
The two Bear Stearn hedge funds are facing liquidation by Merrill Lynch, JP Morgan, etc. While Bear Stearn and all the brokers try to avoid a fire sale of these CDO and subprime loans, someone will need to eat up the loss. What’s more important is that these illiquid CDO if being valued at the market price will most likely be a lot lower than being marked on the books of various hedge funds and brokerage houses. That is not a pretty sight. In the meantime, credit rating agency is taking their down grades slowly but inevitably. If you have funds in such hedge fund, you should redeem your shares ASAP by enjoying a higher falsely marked NAV. By the way, investors can no longer redeem their funds in the Bear Stearn hedge funds. The capital has been locked up since May.
While everyone on Wallstreet is hoping that the subprime loans will recover by delaying the inevitable and postponing the revaluation, you just cannot squeeze a person without sufficient income and without asset and hope to get your money back. You can lock these liars on loans up or threaten them, but no money means no money. Now that housing market is stagnant or falling, the Ponzi scheme of refinancing can no longer continue. With more mortgage resets coming later this year after September, more “subprime” loan supply will come if they can materialize at all.
Eventually someone will be stuck with losses. Make sure it’s not you.
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June 23rd, 2007 at 12:11 am
Frugal,
I’m seeing reports that there was a confirmed Hindenburg Omen on Thursday, June 21, 2007.
July 12th, 2007 at 5:50 pm
The residential use of subprime loans and stated income loans in the housing market should not negate use of these loans in the commercial lending space. Financial institutions like Ocean Capital in Rhode Island are doing quite well helping borrowers without the portfolio to be of interest to the big box lenders secure financing for smaller businesses like gas station purchase, motel acquisition, setting up an auto repair shop and others. A direct connection with the borrower and an eyes-on appraisal of the property seems to be the key to success for Ocean Capital and could be with other lending institutions also. Folks starting out in business oftentimes need less traditional financing to get going.