Sub-Prime Patty Meltdown, Or How Those Subprime Mortages Keep Coming Back Like A Bad Hungarian Dinner...
The Dow has gone looking for the Titanic this afternoon as the French get antsy about all those wonky subprimes they invested in, and who can blame them?
Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points
The safe has been dropped into the middle of the US Credit Market and the real tsunami hasn't yet been felt. The only Ripples we're talking here is the cheap wine the brokers are going to be drowing their sorrows in. The days of Chateau Mont Helena are gone. Welcome to the real world, and the reality based financial community.
A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.
The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
There's only so long that one can live in denial. Even Cleopatra had to get off her barge once in a while. This situation is more than Joe, and Jane Doe with the suicide loan or the giganto HELOC swimming sideways toward the drain. It impacts the prudent and the imprudent alike. Worldwide.
The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spilling into the general economy.
"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."
Yeah, and that includes even those of us who've sat this dance out. The band is packing up, don't look at us to pay the tab.
I was particularly struck by this little incident when the "other" Cramer had his own meltdown last night.
If you want to get a general idea of things just watch the little birds that have been living off the dung on the housing rhinos back for the last five years. Can you say Hakuna Matata!
In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent, to $35.79, and was the worst performer of the 30 Dow components.
But American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."
AIG fell $2.18, or 3.3 percent, to $64.30.
Of course this headline probably didn't help.
Mortgage delinquencies, defaults spreading: AIG
Let me get this straight, they're not worried about anything, and yet they're warning their investors. Ok.
While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.
Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.
But it was clear the overall market was getting worse.
"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.
Everything's A-OK, except where it's not.
Yeah, and other than that how did you like the play Mrs. Lincoln?