Originally Posted by Misfit
I did not mean that kind:-)
Sample in point:
Bear Economists: Subprime mess is now moving more mainstream after 2 more funds have blown up & one more has lost 1.5 or so billion -AHMA expected to file Chapter 11 - it was not even in sub-prime mortgages - but "good credit" mortages
Bull Economists: All of the above, but 2 of the funds were based in France, and not "one" single area of the economy was sucker punched demonstrating the flexibility of the new global economy to absorb shocks etc etc -
Same stats - two different takes
But what you are doing above is only looking at the Stock Market elements of the issue, which is really just the film on top of the cup of water. Economists won't use Bull or Bear, those are stock market terms.
The sentient points of this past two quarters are more fundamental than that perception. The Prime and SubPrime Mortgage market is, by itself not a HUGE element of the economy. Those things that it links directly to are.
First and foremost, much of the SubPrime market is tied up in Hedge Funds and in Derivatives Markets. These Leveraged funds are often at a rate of up to 35:1. What that really means is that if $1Million in actual loans go bad, up to $35Million in securities can be negatively affected. There is much more than $1Million in troubled loans.
Second, this mortgage market directly affects the building industry. Two of the top four builders in the country have already posted near 50% losses and stopped development on 10s of thousands of acres of new development. That trickles down to folks like Home Depot Commercial which is now looking at Chapter 11 as its business has been so negatively impacted. The trickle also runs rampant through the blue collar construction industry, the tools and trucks that they buy, the food they put on their table.
Third, much of the Second Tier Mortgage paper is held, through both Hedge and Derivatives funds in foreign markets, with a major player being China. The domino of the weakening of their young market, with many inexperienced traders [much like US in 1999] travels worldwide.
Fourth, the weakening of credit reliability due to SubPrime and now Prime mortgages, besides signaling a stalling economy, also will introduce a strong tightening of credit for consumers. While personally I think that is a good thing on the consumer credit level, it will make any growth out of the burst bubble that much harder.
So, we are not looking at a stock market issue, where most corporations have global divisions to absorb any local fluctuation in economy. We are looking at a economic foundation issue that is systemic and much more difficult to rebound from and more difficult to "fix".