It ain't Just About Subprime

Markets are tanking today, probably because of the spread of the contagion in loans out of subprime: Countrywide dropped the other shoe on Tuesday, admitting that the bad loans aren't contained to the subprime niche as many had wished. Delinquencies on subprime loans widened to nearly 24% in the latest quarter, Countrywide Financial Corp., the nation's largest mortgage lender, said Tuesday. See full story. But the shocker was that delinquencies on prime home equity loans more than doubled to 4.6% in the most recent quarter from 1.8% a year ago, giving the lie to the notion that the problems in the mortgage market could be confined just to the subprime sector, which caters to those with impaired credit. This isn't unexpected, the Agonist never thought it would stay only in suprime. In 6 months people will be looking back at 4.6% as a good number.

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The greedfest is ending

Major investment banks this week failed to find investors for billions of dollars in loans for the buyouts of Chrysler and the British firm Alliance Boots. Rather than having have made a “bridge loan” until they found investors, they must now carry these risky loans on their own books. This is mockingly known as a “pier loan”, as in “a long walk off a short pier.” This is a direct result of the metastasizing subprime debacle. Credit is getting harder to get. Investors don’t want risky stuff anymore. Countrywide Financial blew up Tuesday, announcing terrible earnings. The CEO said “Home price depreciation at levels not seen since the Great Depression,” and that prime mortgages, not just subprime are in trouble.

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