Thursday, March 15, 2007
Subprime Woes
Who had even heard of subprime lending up to two weeks ago?
Ok to be honest I had but only because I love all this kind of financial stuff (one of my mates at UBS has been telling me for ages to buy a Put on Fanny mae!!). But to most people its all a bit double dutch. To put it simply subprime lenders are mortgage lenders in the US who lend to the more riskier borrowers. They borrow from big banks like HSBC at low interest rates and onward lend to high risk borrowers and at a higher interest rate and take the spread between the interest rates as profit.
And this is all well and good..............until the borrowers stop paying their mortgage repayments....because when that happens the subprime lender can't afford to repay their main borrower. And all hell breaks loose.
Most the subprime lenders have been reporting massive problems and New Century Financial has been delisted and could potentially go bust!
This has caused further problems in the markets with the SPX falling heavily on Wednesday (28 points) and then falling again badly tomorrow intraday before rebounding to finish 9.22 points to 1,387.179. If our play was still on we would be deeply in the red.
Good thing we got out.
I will be setting out how our next play will go tomorrow so please watch out.
Until next time
Ok to be honest I had but only because I love all this kind of financial stuff (one of my mates at UBS has been telling me for ages to buy a Put on Fanny mae!!). But to most people its all a bit double dutch. To put it simply subprime lenders are mortgage lenders in the US who lend to the more riskier borrowers. They borrow from big banks like HSBC at low interest rates and onward lend to high risk borrowers and at a higher interest rate and take the spread between the interest rates as profit.
And this is all well and good..............until the borrowers stop paying their mortgage repayments....because when that happens the subprime lender can't afford to repay their main borrower. And all hell breaks loose.
Most the subprime lenders have been reporting massive problems and New Century Financial has been delisted and could potentially go bust!
This has caused further problems in the markets with the SPX falling heavily on Wednesday (28 points) and then falling again badly tomorrow intraday before rebounding to finish 9.22 points to 1,387.179. If our play was still on we would be deeply in the red.
Good thing we got out.
I will be setting out how our next play will go tomorrow so please watch out.
Until next time
# posted by Paul @ 6:20 AM 
