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The subprime mortgage bubble

There are always bubbles growing and bursting.  Markets are always going to be there but the question an investor should ask is whether will he be there with the market?  I think its obvious that there were a few burnt players that are no longer in the market.  The key is not to be one of them. 



Rule 1 in investing: Don't lose money :0

 

In 2000 there was the internet bubble. In 2007 there is subprime default - Everyone can see it coming but still world markets are going from strength to strength. It is really beyond comprehension.

 

13% is good money but what will happen if they can't pay back.

 

Loans be it subprime or prime are nearly always securitised in this day and age. 

What does this mean?  Basically, I obtain say 100,000 home loans, package it out as a 10 billion dollar note facility with specified repayment terms. (assume $100,000 loan value)

But to obtain these 100,000 home loans, i need short term finance in order to accumulate such a large number.  That's why these sub-prime lenders borrow money.

Problem is who buys these $10 billion note issues?  Pension funds.  The worry here is not these sub-prime mortgage originators.  But its all the sub-prime securitised loans out there, sitting on the books of all these investment funds...  That's the fall out that worries me.

 

very informative. thks

 

if a lot of pple talking abt it, then it will not happen.

 

Sam Adelton
Mar. 18, 2007
The subprime mortgage bubble has collapsed. The effects are
devastating. The economy is ready to tank and it will take the
stock markets with it.
According to analysts, 1.5 million more Americans may lose their
homes, another 100,000 people in housing-related industries could
be fired in the next several months. The biggest layoffs are
occurring in the financial services industry. According to some estimates in
the next several months 20% of the workforce in the mortgage banking
sector will lose their job. The financial services industry and
the banking sector will lose close to 40% of its workforce in the next
two years.
The effect is far bigger than the dot com bubble. The biggest
problem is that the subprime mortgage defaults are now spreading fast
into regular mortgage sector. Senior citizens who took second, theirs
and forth mortgages are now reverse mortgaging. Soon they will leave
helpless without a home.
The crash in stock markets worldwide is inevitable.
Rapid interest rate rise in China and India in the middle of
deflation extremely bearish for world stock market - Dow can fall below
10,000 by end of April