Subprime contagion spreads

collapsed house

Mortgage insurers MGIC and Radian announced Monday they are writing off most if not of a $1 billion joint venture. The Sowood hedge funds cratered yesterday losing 50%, over $1.5 billion, in just one month.

A French firm is closing three funds after $1.37 billion vaporized while a German bank is teetering after announcing ten days ago that all was fine. They have $11.1 billion in “financial obligations.”

Yet another Bear Stearns fund blew up, this one for $900 million, and was neither subprime or leveraged, a seriously bad portent, as if more were needed.

Gee, a billion here, eleven billion there, sooner or later, you’re talking real money. And this is just the leading edge of the financial chaos… Unregulated markets, garbage passed off as investments so everyone could continue making obscene profits, but that wasn’t enough. They had to go and leverage it, which made the inevitable collapse ever more sudden and precipitous.

The Oil Drum sums up the near future, now that financial markets are facing serious trouble. The ruling class will attempt to gouge the working class even more viciously, because if they don’t keep making enough profit to support their leveraged empires, the whole thing will blow up in their faces.

Thus, the pressures that have driven profits up (and wages down, or sideways) in recent years are not going to abate, quite the opposite; in fact, they will become even more violent as the economy slows down: in order to continue to squeeze profits out of increasingly tough, or stagnant, markets, you can expect the time-tested restructurings, downsizings, rightsizings and wage restrictions to continue with ever more viciousness.

Altogether, the politics of individual greed over those of a collective future need to be blamed.

American Leftist has some thoughtful comments about how we need to focus on the human side of this. Businesses will slow down or close. Jobs and homes will be lost. Real people suddenly without homes and jobs.

  • Schadenfreude is what I feel when I hear that mortgage companies are biting the dust. I still don’t know why there is such herd mentality in the US when it comes to investing. Diversity used to be the way to go, but then people started putting their eggs in one basket, real estate, and now they are reaping the consequences. There is a real lesson here about the excesses of deregulation, but I seriously doubt Americans will learn it given the rhetoric that the Republican media outlets are spewing forth.

    And, if that weren’t enough, the fact that American companies are making bank in regulated markets like Europe and getting trashed in unregulated markets like the US should impress upon everyone that regulations need neither kill economies nor suppress individuals. Europeans are enjoying a far higher standard of living with greater profitability in their industries and less ills from pollution, tainted Chinese foods and products and evil insurance companies, and without collapsing bridges or exploding steam pipes.

    But, hey, we are free to screw ourselves it seems, and that’s the freedom that Americans seem to prize most.


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