World equity markets continued to tumble on Wednesday as fears over the growing crisis in the US subprime mortgage market triggered fresh selling.
After Wall Street tumbled overnight, Asian and European bourses were hit hard as investors headed for the safer investment havens such as government bonds. Credit markets also continued to weaken.
In Asia, the sell-off was broad and deep on investors’ worries that the subprime mortgage problems could hit the US housing market and the broader US economy – a big export market for many of the region’s companies. The Tokyo stock market plunged 2.9 per cent, Singapore by 3.3 per cent, Mumbai dropped 3.3 per cent, Hong Kong by 2.5 per cent and Shanghai by 1.9 per cent.
That was the headline splashed at Drudge, and there is also this story:
Late mortgage payments shot up to a 3 1/2-year high in the final quarter of last year and new foreclosures surged to record levels as borrowers with tarnished credit histories had trouble keeping up with monthly payments.
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Tuesday, reported the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95 percent in the October-to-December quarter.
That marked a sharp rise from the third-quarter’s delinquency rate of 4.67 percent and was the worst showing since the spring of 2003, when the late-payment rate climbed to 4.97 percent.
I am not going to even pretend that I remotely understand the complexities of the mortgage game, but I do know that Kevin Drum has been warning about a crash of this sort for several years (this is on of his pet issues, along with peak oil). This could be a very serious problem with major implications to the entire economy.
*** Update ***
Some interesting comments:
simple look at a complex subject:
A lot of people obtained financing to buy homes they couldn’t pay off, mostly so they could then resell them and make a quick buck. A lot of lenders borrowed the money to make these loans then turned around and sold the loans to make a quick buck. A lot of institutions bought these loans for both a quick buck and a steady payoff. A lot of individual investors saw all this money flowing and wanted a share of it, so they put their money in as well. All this extra money flowing around made everyone feel good and they bought lots of goodies.
A lot of the people who couldn’t afford it aren’t paying the bills. The lenders, therefore, can’t repay what they borrowed. Because of this, the easy loans have dried up. Consequently a lot of people who can’t afford this but who were expecting to sell are ALSO not paying the bills, making this vicious circle worse. The institutions aren’t getting their money. Everyone involved is trying to make someone else eat the loss. The individual investors, seeing this circular firing squad, are trying to get THEIR money out as well, which makes things worse. All this disappearing money means people are NOT buying goodies, which hits companies which aren’t part of the circular firing squad.
There are a lot of additional complexities and parties involved – and parsing into subgroups of the parties already mentioned – but that’s the gist.
Some people tried to get money for nothing, and enough people joined that it turned into a game of musical chairs. And the music just stopped.
And I work in the industry. The benefit of this meltdown is the first to get hit hard are the lenders who had no standards.
I hope anybody who got suckered into subprime mortgages has a lawyer, and they’re fighting to new payoff terms.
Those who took out subprime to buy houses they thought they were going to flip. So sorry, go fuck yourself.
Have no fear, they are rushing to bail out the people who made this mess in the first place:
U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.
“The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,” Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.
Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners “forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,” Dodd said.
while it sounds like they are bailing out homeowners, this would be a direct stream of cash to the lenders who caused this problem in the first place. Think Airline Industry Bailout multiplied by a factor of 100. As one person noted, this is more of the “privatization of profit, socialization of risk.” Much more here, and here is a great website dedicated to the topic.