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Subprime – Enough Already

Posted on Sunday, Aug 19th 2007

By Frank Lara, Guest Author

We all saw this coming, the warning signs where there, and yet, subprime lenders kept doing what they do best – lending money to people who can’t afford to pay it back in the first place.

How could these institutions think that the good times would never end? What planet do they live on, and now that the worst has happened, they are all saying it’s no big deal? Give me a break. So now, the stock market has to deal with it’s arch enemy, uncertainty. How will this impact the market on Monday, will it get worse in the weeks ahead, will my portfolio turn into pennies?

No matter how bad the crisis may be, Andreas Huerkamp, a Commerzbank analyst, said it best last week:

“There are strong parallels with the crisis in the mid-90s so you have to be a brave investor to buy shares at the moment. But history shows that everything will be forgotten in six months and the market will recover.”

The Federal Reserve Bank threw $62 billion into the market last week and the Frankfurt-based European Central Bank added 8 billion euros, more than the bank had released after the September 11, 2001, attacks on the United States.

The true criminals are the guys like American Home Mortgage Investment Corp (NYSE:AHM) robbing shareholders and their employees, taking them for all they had. In June AHM’s shares were in the $20 range, last Friday they closed at 44 cents a share. Sure these lenders and corporations can say the magic word, ‘Chapter 11’ and their problems more or less go away. But the guy holding shares of AHM is left with an Enron taste in his mouth.

Bottom line – Never believe the good times will last forever and shame on you lenders for taking advantage of people’s dream of being a home owner. In 2006, 40% of all loans were “a hodge podge of nonconforming loans,” according to Derek Egeberg, a mortgage adviser with First Magnus Home Loans. People might have gotten a subprime loan, paying a higher interest rate because they were considered a higher risk. Or they got adjusted rate mortgages that started with low initial interest rates that would increase after a couple of years.

So now, we just all pick up the pieces, and watch the market tear apart the lenders. It’s karma my friends, it plays true on Wall Street and be prepared for more backlash starting Monday.
Frank Lara Jr.
Article written by: Frank Lara Jr.

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