Subprime mortgages sinking stock market?

More turmoil in the stock market. Just when it seemed it was safe to buy stocks for price increases again, after the late February drop caused by the drop of Chinese stocks on the Shanghai index, market pros are now upset over the situation of the American mortgage industry.

There's been so much money connected to mortgages that lenders have totally relaxed their standards -- borrowers were not even required to prove their income. I can't hardly imagine that - I remember the hoops I had to jump through when I bought my two houses. But interest rates have been so low this century that people have been able to buy far more house than they would have been able to before. Even if they're not able to keep up the payments.

So one of the biggest "sub-prime" lenders, New Century Financial, is on the verge of bankruptcy. Foreign markets in Asia and Europe have just tanked, because they're afraid Americans will no longer be able to buy up 95% of all consumers goods sold in the world.

Like all things, these excesses will worth themselves out, but it will be painful. Possibly very painful, according to some predictions. Of course, I've never advocated buying any mortgage or mortgage related securities. It is possible that some financial institutions that normally have been paying good dividends, such as Citigroup, will be burned by this. Citigroup apparently owned a lot of subprime mortgage risk.

REITs, which mainly collect rent, should not be as big a problem, except as the businesses they rent to are affected by any general economic slowdown.




stock market risks
stock market risks