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August 07, 2005 at 04:00 PM
So here we are–yet again–in what is undoubtedly just the beginning of another major financial crisis; the point where the bubble has burst but the detritus has not yet settled.
The markets–stock, credit, etc.–seem to have awakened all at once to the fact that in the last few years the housing market got overheated, primed by an explosion of mortgage lending which went steadily from good credit risks to those who were just plain risky.
There may be hell to pay now, but boy, o boy, did Wall Street enjoy it while it lasted!
The subprime market, as it’s called, has all but evaporated, squeezed by mounting defaults by homeowners who couldn’t really afford their homes in the first place and definitely couldn’t afford their mortgage payments as initially low rates started to rise inexorably.
These loans were of course securitized by Wall Street firms, which in turn created more liquidity at the time for the overheated housing market. Now that these subprime homeowners are defaulting in record numbers, these securitizations don’t look so good and many firms that invested in them are losing their shirts.
Credit has tightened startlingly in an amazingly short time. Now even people with good credit profiles are having to go through greater scrutiny.
These periodic crises are probably just part and parcel of our capitalist system. The S&L crisis, the technology stock meltdown and now this credit crisis are but a few examples of how every few years some big thing comes along and then, fueled by excesses, explodes.
Much is being made about how a lot of these people in the subprime market were victims of not understanding the terms of their mortgages or were victims of outright fraud on the part of mortgage brokers and bankers.
