The Rising Magnitude of the Subprime Crisis
An article published by Fortune Magazine takes a look at the worsening conditions and the long list of victims of the subprime 1st and 2nd mortgage crisis. Here is an excerpt from the article:
Two things stand out about the credit crisis cascading through Wall Street: It is both totally shocking and utterly predictable.
Shocking, because a pack of the highest-paid executives on the planet, lauded as the best minds in business and backed by cadres of math whizzes and computer geeks, managed to lose tens of billions of dollars on exotic instruments built on the shaky foundation of subprime mortgages.
Predictable because… as the fees roll in, one firm after another abandons itself to the lure of easy money, then hands back, in a sudden, unforeseen spasm, a big chunk of the profits it booked in good times.
In pure destructive power, the subprime mess has become Wall Street’s version of Hurricane Katrina. It has wreaked havoc on the nation’s iconic brokerage firm, Merrill Lynch and biggest bank, Citigroup, which have announced billions of dollars in losses and parted ways with their celebrated CEOs, E. Stanley O’Neal and Charles Prince.
The article goes on to give more details about the losses felt by Merrill Lynch and Citigroup, but I particularly liked this excerpt because it has a good grasp on the magnitude of the credit crisis and gives a basic explanation as to why it has gotten as bad as it has. I think it is important that everyone understand this so that nobody is caught off guard when the crisis only continues to worsen.
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