Three More Casualties and Counting
Monday, August 27th, 2007
By Michael Lombardi, MBA for Profit Confidential
The blood bath in the subprime market continues:
Lehman Brothers, the largest U.S. underwriter of U.S. bonds backed by mortgages, announced that it would shut down its subprime lending division and lay off 1,300 employees.
Accredited Home Lenders will shut down more 50% of its mortgage operations, laying off 1,600 employees.
HSBC announced that it plans to close its Indiana office by mid- 2008, with 600 jobs to be gone there.
According to Bloomberg, since the subprime fiasco was first revealed, more than 90 subprime lenders have either ceased operations or are looking for buyers.
Yes, job losses related to the subprime mess will reach 10s of thousands of Americans putting more pressure on the fragile U.S. economy. But it is the defaulting American homeowners that will place the biggest burden on the economy… eventually pushing it into recession.
Two devastating scenarios unfolding:
U.S. consumers who bought homes during the boom days of 2004- 2005 are having difficulty coping with their higher monthly home payments as their home loans are being reset to higher interest rate levels. Problem for this group: If they are having difficulty meeting their monthly payments, their only real alternative to refinance, the subprime loan market, has been shut down.
U.S. homebuilders and homeowners looking to sell homes have an increasingly shrinking pool of potential buyers. Gone are the days when marginal credit worthy homebuyers could qualify for a loan. And other potential buyers, seeing the carnage in the housing market, are waiting on the side lines for prices to fall further.
Any way you look at it, the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second, and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.
Next Post: Cyberspace Not Immune to Economic CollapsePrevious Post: Hoped for Interest Rate Cut Could Give Market a Boost
Tags: stock market, U.S. economy, U.S. government bonds, U.S. housing market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
