Veli Hopea
08-07-2007, 09:02 PM
http://www.star-telegram.com/business/story/192823.html
Posted on Mon, Aug. 06, 2007
Trouble in housing market causing panic on Wall Street
By TOM PETRUNO
Los Angeles Times
What happens in Vegas may stay in Vegas, but what's happening in the housing market -- a financial bust of epic proportions -- clearly isn't just staying there any longer.
That explains why the fear level on Wall Street has become extreme in the last two weeks. There is real panic in the air now.
Veteran investors know that it's usually a bad idea to sell into panics. But after a 4 1/2 -year bull run in stocks worldwide, it's also understandable that many people are antsy to protect the paper profits they've accumulated.
The good news, at least for investors who've been in the stock market for the a few years, is that you haven't yet given up much of your gains. The average New York Stock Exchange issue still is positive year to date, up 2.5 percent.
So you have time to think about what, if anything, you ought to do with your portfolio.
On Friday, some people decided they'd had enough pain. Worries about the growing money crunch, as nervous lenders of all stripes make credit harder to get, drove most stock market indexes to their worst one-day declines since February.
The Standard & Poor's bond-rating firm helped trigger the latest selling wave by warning that it might downgrade the debt rating of brokerage Bear Stearns Cos., long considered one of Wall Street's premier shops.
There's an element of what-goes-around-comes-around in S&P's warning: Bear Stearns, through its EMC Mortgage unit, was one of the major financiers of the boom in subprime mortgages that is now imploding, as rising numbers of strapped homeowners default.
Bear Stearns sold a lot of junky loans to investors via mortgage-backed bonds but also kept some for its own hedge funds. Two of those funds blew up in June, a debacle that S&P said had damaged the firm's reputation.
Bear Stearns executives held a conference call with investors Friday and asserted that S&P's concerns about the firm's credit standing were "unwarranted." But in the same call, the brokerage's chief financial officer, Sam Molinaro, also made no effort to sugarcoat the distress ravaging lending markets. "It's as bad as I've seen it in 22 years," he said.
There are plenty of Wall Street pros who think that's an exaggeration, but no matter: Bear Stearns stock plunged $7.28 to $108.35, nearly a two-year low, on Friday. The Dow Jones industrial average sank 281.42 points, or 2.1 percent, to 13,181.91, and broader market indexes fared worse.
What is a credit crunch? It's when lenders and investors turn reluctant to give money to borrowers who have anything less than top-of-the-line credentials.
Just seven months ago Wall Street was awash in money from investors worldwide. Credit was so easy it was absurd; even the borrowers, in their honest moments, said as much.
Once mortgage defaults began to rise, however, lenders and investors began to wonder what they had wrought. In the last two months, they'd had the same thoughts about financing debt-heavy corporate buyouts. The result: Junk bond interest rates have zoomed to four-year highs.
It isn't as if credit suddenly isn't available, period. Go ahead, use your MasterCard; chances are no one will stop you.
But we've definitely entered the scary zone of the unknown: How many of your neighbors won't be able to make their mortgage payments in the next year? How many more hedge funds worldwide will fail because of losses on dicey debt?
Posted on Mon, Aug. 06, 2007
Trouble in housing market causing panic on Wall Street
By TOM PETRUNO
Los Angeles Times
What happens in Vegas may stay in Vegas, but what's happening in the housing market -- a financial bust of epic proportions -- clearly isn't just staying there any longer.
That explains why the fear level on Wall Street has become extreme in the last two weeks. There is real panic in the air now.
Veteran investors know that it's usually a bad idea to sell into panics. But after a 4 1/2 -year bull run in stocks worldwide, it's also understandable that many people are antsy to protect the paper profits they've accumulated.
The good news, at least for investors who've been in the stock market for the a few years, is that you haven't yet given up much of your gains. The average New York Stock Exchange issue still is positive year to date, up 2.5 percent.
So you have time to think about what, if anything, you ought to do with your portfolio.
On Friday, some people decided they'd had enough pain. Worries about the growing money crunch, as nervous lenders of all stripes make credit harder to get, drove most stock market indexes to their worst one-day declines since February.
The Standard & Poor's bond-rating firm helped trigger the latest selling wave by warning that it might downgrade the debt rating of brokerage Bear Stearns Cos., long considered one of Wall Street's premier shops.
There's an element of what-goes-around-comes-around in S&P's warning: Bear Stearns, through its EMC Mortgage unit, was one of the major financiers of the boom in subprime mortgages that is now imploding, as rising numbers of strapped homeowners default.
Bear Stearns sold a lot of junky loans to investors via mortgage-backed bonds but also kept some for its own hedge funds. Two of those funds blew up in June, a debacle that S&P said had damaged the firm's reputation.
Bear Stearns executives held a conference call with investors Friday and asserted that S&P's concerns about the firm's credit standing were "unwarranted." But in the same call, the brokerage's chief financial officer, Sam Molinaro, also made no effort to sugarcoat the distress ravaging lending markets. "It's as bad as I've seen it in 22 years," he said.
There are plenty of Wall Street pros who think that's an exaggeration, but no matter: Bear Stearns stock plunged $7.28 to $108.35, nearly a two-year low, on Friday. The Dow Jones industrial average sank 281.42 points, or 2.1 percent, to 13,181.91, and broader market indexes fared worse.
What is a credit crunch? It's when lenders and investors turn reluctant to give money to borrowers who have anything less than top-of-the-line credentials.
Just seven months ago Wall Street was awash in money from investors worldwide. Credit was so easy it was absurd; even the borrowers, in their honest moments, said as much.
Once mortgage defaults began to rise, however, lenders and investors began to wonder what they had wrought. In the last two months, they'd had the same thoughts about financing debt-heavy corporate buyouts. The result: Junk bond interest rates have zoomed to four-year highs.
It isn't as if credit suddenly isn't available, period. Go ahead, use your MasterCard; chances are no one will stop you.
But we've definitely entered the scary zone of the unknown: How many of your neighbors won't be able to make their mortgage payments in the next year? How many more hedge funds worldwide will fail because of losses on dicey debt?