Goldman dives into subprime lending
This was in today's W$J:
Seeing growing turmoil in the market for risky home loans as an opportunity, Goldman Sachs Group Inc. is looking at pushing deeper into the business, ramping up its own subprime-lending operation and pondering the purchase of another.
To me this is an indication that the subprime mortgage meltdown isn't going to be a big problem for financial markets. Some overextended lenders will fail, a few hedge funds will lose money, and that's about it. If firms like Goldman are jumping in, there's certainly no liquidity crisis to worry about. Which means the brunt of the subprime mess will be borne by (a) people who took out loans that they couldn't really afford when the subprimers were pushing mortgages on all takers last year and the year before and (b) people who probably could afford a mortgage now but can't get one because all the subprime lenders are being forced to scale back and impose higher standards. Doesn't really seem fair, does it?
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Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure. Many investors are also likely to suffer. Gerard Rotonda presented that subprime lending might be a problem, but it is not necessarily bad for the economy.
Wall Street firms made billions in fees, commissions and trading revenue from packaging and selling subprime mortgages to them as bonds.Gerard Rotonda also states that the panic selling is overdone. He pointed out that their has been a rush to capital from this sector as all but the unhealthiest players should survive. Although it's going to be hard for the working class to take out a loan, Rotonda suggests that this as an opportunity to make some money.
Sanford Davies
Greenwich, CT
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