Subprime Mortgage Losses Hammer The Stock Market
The subprime mortgage meltdown is now filtering it’s way through the economy hitting the stock market on Friday June 22, 2007. The Dow dropped drastically (over 185 points) after Bear Stearns announced $3.2 Billion (yes that’s Billion…with a “B”) bailout of one of their hedge funds (High-Grade Structured Credit Strategies Enhanced Leveraged Fund) that suffered losses due to subprime mortgage lending.
Bear Stearns also has another hedge fund (Enhanced Leveraged Fund) with subprime exposure and currently owes it’s creditors over $7 Billion! Looks like another bail out is in the making…
To put this into perspective, the $3.2 Billion is about 25% of Bear Stearns common stock equity.
Ouch!
Would you commit 25% of your total net worth on an investment that can only get worse from here? Aren’t they putting good money after bad at this point? If you or I made a bad investment and lost a ton of money, and keep chasing the investment with more money, they’d call us crazy!
See the Reuters video report below…
Other banks and financial firms suffered as well.
Merrill Lynch, Lehman Brothers, Citigroup, and Bank of America all took a 1-3% single day hits to their stock prices. The market movers know all these companies have enormous subprime mortgage exposure and sooner or later the costs that hit Bear Stearns will eventually hit them all.
Of course, I’ve been screaming about this eventuality here for…not months…but years.
The rest of the world also took note of this and decided to sell these financial stocks in droves. If this lack of faith in our financial “big boys” carries over to a lack of faith in the dollar and our bonds they’ll be pulling their money out of those markets too…
Well, can you say “recession”…or worse… “depression”?
TheStreet.com website is reporting from Business Week sources of a SEC probe into why this bailout comes on the heels of Stearn’s rosy claims earlier in the year all was normal at the fund.
Yikes!
When it rains, it pours…
Business Week goes on to say a SEC probe is not an indication of guilt and that nothing may come from the probe.
I don’t know about you, but I think the SEC has better things to do than “probe” a behemoth company like Bear Stearns without some indication of misdeeds.
The old adage, “Where there’s smoke, there’s fire” comes to mind.
Stay tuned…
I’ll keep you posted here on any new developments.
In the meantime, be sure to measure your exposure to these stocks, and the real estate market in general.
Author: The Mortgage Insider
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Smell some more of that coffee folks and ask yourself. Wwhat started this whole mess in the first place. It was the government regulators who steped in and imposed regulation which shut off the flow of dollars to the subprime market. They went in with their oh so common finger pointing and blame techniques. They did this to us and convinced us all under the guise of “predatory lending, Fraud” and ohhhhhh, dont forget “High Foreclosure Rates” When in fact the exact opposite was true, mortgage backed bonds , the industry and the housing market as a whole was making plenty of money. Tell me, do you see a problem with a very low 1-3% foreclosure rate in an up trending real estate market, a market in which the value is more than the foreclosed loan amount? Or in comparison to a trillion dollar mortgage market where huge amount’s of profits are being made by everyone? We now have, so like the like the democrats, the government throwing billions dollars away thinking that they can fix the problem they caused, I think NOT! The government regulators only goal was to pop the housing bubble and to take control over the entire trillion dollar mortgage market through FANNIE AND FREDDIE MAE and FHA. I ask, doesn’t that sound like fun to have these same people in control of the market? It is the government regulators who are not only Predatory but Fraudulent and Reckless in there control over the mortgage lending market. Their interventions and action’s have cause this self fulfilling prophecy, they will only burn the place to the ground if people don’t wake up and put a stop to it. It is because of their reckless and fraudulent actions that a lot of good educated people will wind up paying the price. Learn to read between the lines people and stop allowing the Government to protect you from yourselfs. And now they step back and wont do a **** thing!