| New alarm: Option-ARM 'liar's loans'
The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.
Numbers from industry trackers suggest that these borrowers, most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity, are starting to create a second tide of defaults for lenders swamped by the meltdown in subprime loans made to people with bad credit or overstretched finances.
Countrywide Financial Corp., the top option-ARM lender, will be hit hard. Already reeling from the subprime mess, Countrywide was rescued from possible bankruptcy this month by Bank of America Corp., which agreed to acquire it for about $4 billion.
Australian stocket market closes sharply lower
The major banks and big miners were all weaker. Macquarie Equities private client adviser Marcus Droga said there was still a strong sense of caution and concern among investors. "It's all running off the back of the US situation, the rescue package announced (by US President George Bush), and over-riding concern over whether or not they are slipping into recession,'' Mr Droga said. On Wall Street on Friday, the Dow Jones industrial average lost 59.91 points to 12,099.30 as multi-billion-dollar losses announced by US major banks earlier in the week overshadowed President George Bush's outline of a $US150 billion economic stimulus plan. There will be no lead from the US tonight as the American market is closed for a public holiday. Locally today in the resources sector, global miner BHP Billiton was down $1.51 at $33.29, and Rio Tinto dumped $9.75 to $114.25.
Pushing on a String − the LIBOR Conundrum
The markets rebounded strongly this week, bouncing off a 10% drop in the previous weeks. Is it a signal of renewed economic vigor? Or is it a dead cat bounce? This week we take a look at problems at the edge of the economy which threaten to derail not only the recent robust growth (at least in the statistics) but also the markets. And we start with a personal story which I think will help us understand the current situation. Stay with me here. A Thanksgiving Fire Drill Last Thursday, we sat down for a massive Thanksgiving dinner at my 21st floor apartment in Dallas. All seven kids, my 90-year-old mother, and an assortment of friends and relatives (about 15 of us) started to work on a 16-pound prime rib, 18-pound turkey, and massive amounts of potatoes, mushrooms, and lots more.
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