HSBC Horror Stories

Many other countries have not gotten down to the dirty task of lending money for housing to people who can’t afford it and then financially leveraging the loans to create billions in false value. That’s what the U.S. has done and it has the potential to impact people around the world. The U.S. subprime market has been used in numerous fund portfolios.

An article in U.S. magazine Fortune suggested that many of the managers of these funds are not sure how exposed they are to the subprime collapse. Because of the many ways that monies are invested and the different ways that subprime mortgages have been used to prop up various financial instruments, no one knows how bad it could be or how far the effects could reach. But what we do know is that it is affecting the ratings of the U.S. bond market and that the likes of Bear Stearns and Goldman Sachs have already lost billions.

Every new loan that is larger than the last contributes to increasing over-all economic instability. The outcome of such has historically been a crash corresponding to the magnitude of this debt distortion. That is a direct quote from “The History of Subprime and Predatory Lending” (see it here)

Borrowers, and primarily those who lost their homes to subprime foreclosure, are possibly the least effected. Assuming they already spent their 401-K retirement money, and their savings, they will not lose another $100,000 in one day if the U.S. stock market takes a huge dip. Those borrowers will not see any impact on retirement plans and other investments tied to the bond market.

The history of subprime and predatory lending is not a long and rich history. According to the New York Times, in 1980, Congress helped launch the sub-prime lending industry by effectively eliminating state laws capping interest rates on first mortgages, and two years later by ending “most state restrictions on ‘alternative’ loans”. (Also a direct quote from “The History of Subprime and Predatory Lending” more )