GARY DUNCAN, TIMES, UK - The deepening scandal of the US "sub-prime"
mortgage implosion looks more and more like a cautionary tale of
financial excess that sits unhappily alongside Enron and the dot-com
bubble, both in terms of scale and consequences.
It is story of Dickensian bleakness: of avaricious money-merchants and
of the broken dreams of struggling but foolhardy men and women who
seized on false promises of an easy leg up the ladder of their own
aspirations.
To much of the United States, and most of us in Britain, "sub-prime"
lending is another country of which we know little. Yet for millions of
America's poor, it is a financial trend that has turned from seeming
salvation to curse in five or six short years. Viewed in hindsight, the
debacle that is now unfolding was, like many such events, an obvious
accident waiting to happen. . .
It is plain that the social consequences of all of this are as grim as
they are scandalous. Yet many US analysts appear excessively relaxed
about the wider fallout for a slowing American economy, arguing that the
scale of the sub-prime market means that any spillover effects will be
slight.
This looks about as complacent as the thoughtless lenders who are now
going to the wall. Not only is it clear that the sub-prime crisis is
going to get a whole lot worse before it runs its course, but the
potential for a domino effect hitting large parts of the United States'
housing market, and the wider economy, looks rather greater. . .
An excess of property and a drop in demand will put more downward
pressure on US house prices, deepening the slump in the property market.
In turn, the impact could then be felt on consumer demand, since
American homeowners have for years relied on cashing in on the
previously rising value of their homes to finance their high-spending
habits.
Factoring in lower demand, in the event of sub-prime loans completely
drying up, Mr Dales calculates that — in a possible worst-case scenario
— the sub-prime meltdown could end up with ten months' supply of homes
on the US property market, up from about six months' supply now: enough
to trigger significant price drops.
Even if things do not get quite this bad, what is increasingly clear is
that the parable of the sub-prime lender is not one that will have a
happy ending.
http://business.timesonline.co.uk/tol/business/industry_
sectors/construction_and_property/article1599721.ece
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mortgage implosion looks more and more like a cautionary tale of
financial excess that sits unhappily alongside Enron and the dot-com
bubble, both in terms of scale and consequences.
It is story of Dickensian bleakness: of avaricious money-merchants and
of the broken dreams of struggling but foolhardy men and women who
seized on false promises of an easy leg up the ladder of their own
aspirations.
To much of the United States, and most of us in Britain, "sub-prime"
lending is another country of which we know little. Yet for millions of
America's poor, it is a financial trend that has turned from seeming
salvation to curse in five or six short years. Viewed in hindsight, the
debacle that is now unfolding was, like many such events, an obvious
accident waiting to happen. . .
It is plain that the social consequences of all of this are as grim as
they are scandalous. Yet many US analysts appear excessively relaxed
about the wider fallout for a slowing American economy, arguing that the
scale of the sub-prime market means that any spillover effects will be
slight.
This looks about as complacent as the thoughtless lenders who are now
going to the wall. Not only is it clear that the sub-prime crisis is
going to get a whole lot worse before it runs its course, but the
potential for a domino effect hitting large parts of the United States'
housing market, and the wider economy, looks rather greater. . .
An excess of property and a drop in demand will put more downward
pressure on US house prices, deepening the slump in the property market.
In turn, the impact could then be felt on consumer demand, since
American homeowners have for years relied on cashing in on the
previously rising value of their homes to finance their high-spending
habits.
Factoring in lower demand, in the event of sub-prime loans completely
drying up, Mr Dales calculates that — in a possible worst-case scenario
— the sub-prime meltdown could end up with ten months' supply of homes
on the US property market, up from about six months' supply now: enough
to trigger significant price drops.
Even if things do not get quite this bad, what is increasingly clear is
that the parable of the sub-prime lender is not one that will have a
happy ending.
http://business.timesonline.co.uk/tol/business/industry_
sectors/construction_and_property/article1599721.ece
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