Tuesday, March 06, 2007

You though it couldn't get worse!

We can’t help but notice, the lenders that are biting the dust, are in sort of a rush to jump off a cliff. There is the Bakersfield Bubble blog and the Implode-O-Meter blog that have been covering it.

What is not really being thought through, is the idea that each lender had a pretty good idea of what was going to happen 3 to 5 months out. The problem is, the loan manager is out of the loop at this point. The loan has been packaged and shipped to an investor. It’s only when the investors start returning the packaged loans that the problem is perceived and enjoyed for what it is; a bad loan, a survival problem.

If you take a lender like HSBC and realize that they are writing off 10 billion this year, it makes you pause. If this is the tip of an iceberg, they’re already compromised in a bad way. Probably the most commonly heard phrase in HSBC right now is, “I don’t know how bad it is, we are trying to determine if our situation is survivable.” Just wait until the loans from 2006 reset. Most of the damage that they are trying to recover from is probably from 2004 and 2005. The big stuff from 2006 is still “floating around.”

The loan market is winding down. There are fewer people that can qualify for a loan. The loan requirements are getting stricter, and the amount you can borrow is decreasing. There aren’t too many people that can afford a house at these prices.

What investors don’t realize is that the bond market is 10 times the size of the stock market. If you can envision the collapse of major market makers in the bond market, it doesn’t take much to connect the dots and figure that the stock market has a problem that won't go away.

1 comment:

Anonymous said...

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