The subprime dominoes in motion

[donsu]

http://www.atimes.com/atimes/Global_Economy/IC16Dj04.html


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The subprime mortgage industry in the United States is in the process of being eaten alive. From March 5 to March 13, shares of the four top pure subprime mortgage players, New Century Financial, Fremont General, Accredited Home Lenders and Novastar Financial, were down an average of 43%.

Since February 5, when HSBC reported on its subprime mortgage problems and it began to dawn on investors just how serious the problems in this sector had become, these stocks are down an average of 80%. The once-high-flying New Century Financial is down 97% and has been delisted from the New York Stock Exchange.

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Massachusetts Secretary of State William Galvin has issued subpoenas to investigate Bear Stearns' March 1 ratings upgrade (in essence, a "buy this stock" recommendation) of New Century. In the eight days after the upgrade, the stock declined 94%.

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In retrospect, one might argue that they should have known better. But the questions remain: Did they extend credit or short-term loans to subprime lenders? Did they buy collateralized mortgage securities to hold in their own portfolios? Did they, through the clever camouflage afforded by a supposedly arm's-length subsidiary, actually write their own subprime mortgages?

No one really knows, but Wall Street fears that the answer is yes.
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