A formerly obscure mortgage company, Thornburg, is now headed for bankruptcy, foundering under the weight of a portfolio of deteriorating Alt-A loans.
“I can’t believe it came to this,” Mr. Goldstone says. “The step down in the last two or three weeks is beyond anything I’ve ever seen, and I’ve been in this business 25 years.
“I’ve been sleeping two or three hours a night and working seven days a week for the last three weeks,” he adds.
Whether or not Mr. Goldstone can reprise Thornburg’s Lazarus-like return from the dead, Alt-A is likely to emerge as Wall Street’s next big worry. The Alt-A market totals $500 billion to $1 trillion, said Bose George, an analyst at Keefe, Bruyette & Woods.
IN other words, this isn’t the tip of the iceberg; it’s another iceberg entirely.
“Alt-A is such a broad group of loans, it’s very hard for investors to know which will perform poorly,” Mr. George says. “Big chunks will perform very poorly. Other parts will behave like prime.” That’s why so many investors are bailing out now.
The story of Alt-A and Thornburg also illustrates why the current credit crisis is different from past panics, like the market crash of 1987 or the crisis a decade ago when Long-Term Capital imploded. Those were rapid-paced events, which erupted and then faded from view. This is more akin to a slow-motion, chain-reaction car crash.
Hedonic Adjustment pooh-poohed this company years ago. Part of its marketing strategy was to work with financial planners to get them to have their clients take out home equity debt so that the planners could invest the client's money, and reap the management fees.
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*Why stolen? I'm on vacation, writing this on somebody else's computer while my kid runs amok in somebody else's living room.
2 comments:
The Alt-A and Prime loans will REALLY start to go bad, then people will realize this is NOT contained to subprime.
I think the party has started now. With Bear Stearns being bought and the Fed intervening, oil on the increase with no end in sight, the Fed continuing to drop rates, our dollar value falling hourly, I wonder how long things for housing can remain rosy - even in Boston - you know, they aren't making any more land here (an argument used JUST TODAY in the Boston Globe).
I think we are going to find more comparisons to Japan - where, they too, are not making any more land - in the next couple months. They had 14 years of real estate price decline.
Thanks again, HA, for blogging about this article.
Kris in JP
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