Mortgage lenders get a lifeline, troubles linger
Sub-prime mortgage crisis could torpedo 2007 economy
Top investor sees U.S. property crash
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Fri Mar 16, 2:51 AM ET
A Wall Street fixed income strategist warned on Thursday that the greatest risk investors face is for the troubled U.S. subprime lending sector to trigger a spiral of falling home prices and mortgage defaults.
There is not enough evidence to indicate such a scenario is taking place, but the risk of a broader market impact is "very real," Adam Topalian, fixed income strategist at Lehman Brothers, said at a dinner for investment professionals.
The test will be whether lenders tighten up when $900 billion in adjustable rate mortgages -- including $650 billion from high-risk borrowers -- reset in the next two years, Topalian said at the CFA Society of Seattle's annual forecast dinner.
"Any kind of sharp pullback in lending could lead to a vicious spiral of continued housing price depreciation and defaults," said Topalian. "This does have the potential to feed on itself and it's a real concern."
Topalian believed, however, it was unlikely that defaults in subprime loans would derail the U.S. economy.
At least 20 companies in subprime mortgage lending have gone out of business in recent months as defaults and foreclosures have risen in the wake of rising interest rates and falling U.S. house prices in the past year.
The strategist dismissed the notion that high-risk home loans were limited to only certain areas and neighborhoods and cited data that 60 percent of U.S. zip codes have between 25 percent and 75 percent subprime home borrowers.
[OMyGAWD]
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"Suburbia is not being protected; it is being saved for dessert.
It is this sector with its fragile, technological, disembodied living standard that will now come under attack. In the short term, that is already happening through financial manipulation and the further disappearance of living-wage jobs. The tremendous personal debt burden that is mounting in the American “middle class,” fueled by past low interest rates and cash-out equity loans, was the latest maneuver to prop up this sector’s role as global consumer—a time bomb that will explode directly under Suburbia’s feet.
Meanwhile, the liquidation of the commons—from Medicare to Social Security to public services—constitutes a massive transfer of wealth saved by these working people directly into the speculative money pit that is Wall Street. Suburbanites are workers in the truest sense, even though they seldom stand on the factory floor now. They don’t know it, but they are weak, dependent, high-maintenance workers in a consumer mill.
The bill for the United States from Treasury loans to other nations—already impossible to pay—grows exponentially to support the cost of the military now conducting the war, those we see as the guardians of civilization. Our children are inheriting this impasse. We have witnessed what happens when the suburbanites are fleeced; with the taxpayer bailout of the savings and loan criminals, the Long Term Capital Management hedge fund, these burdens will invoke the “too big to fail” principle. From Chrysler to Enron, the so-called middle class will pick up the tab.
The real threat will not appear as an Arab with a bomb or a 16-year-old with brown skin and a Glock. It is already present. It has appeared as pension funds disappearing in strategic bankruptcies. It has appeared as sub-prime lending and subsequent foreclosures.
“Thank you for buying all these houses,” the banks are already saying. “Now we can take them back and rent them to you.”"
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