The other implosion

While everyone has been watching the implosion of George W. Bush's justice department the smoke has cleared from his smoke and mirrors recovery.

• Countrywide ends no down-payment lending

  Countrywide Financial Corp. (NYSE:CFC - news), the largest U.S. mortgage lender, on Friday told its brokers to stop offering borrowers the option of no-money-down home loans, according to a document obtained by Reuters.
  
  Loans financing 100 percent of a home's value are among those that have led to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below "prime" quality have resulted in losses, sales and even closures at more than two dozen mortgage lenders, analysts say.

• New Century stock falls

  New Century Financial Corp. (NYSE:NEW - news) shares fell 17.1 percent to an eight-year low on Friday after analysts said the largest independent U.S. subprime mortgage lender, which faces a criminal probe and has stopped making new loans, may soon seek bankruptcy protection.
  
  The subprime sector, whose lenders offer financing to people with poor credit histories, suffered a further blow as General Electric Co.'s (NYSE:GE - news) WMC Mortgage unit said it would lay off 460 people, or 20 percent of its work force.
  
  Shares of Irvine, California-based New Century fell a day after it said it stopped taking loan applications, lined up $265 million of funding secured by its mortgage loan portfolio and other assets, and would refinance $710 million of loans.
  
  Morgan Stanley provided the financing, people familiar with the matter said.
  
  Analysts said New Century probably would be unable to resolve disputes with other lenders, including at least five that have so far refused to waive borrowing covenants.
  
  Merrill Lynch & Co. analyst Kenneth Bruce and JPMorgan analyst Andrew Wessel both wrote that a bankruptcy filing for the real estate investment trust "seems imminent."

• Crisis Looms in Market for Mortgages

  On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.
  
  What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.
  
  The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.
  
  Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

• Subprime mortgage sector rattles markets, triggers probes

  U.S. financial markets were rattled by news on Tuesday that late payments on U.S. mortgages had reached their highest level in 3-1/2 years, while regulators began a probe of subprime mortgage lending and called for legislation.
  
  U.S. lenders specializing in making loans to high-risk borrowers have been struggling with rising defaults and foreclosures on home mortgages as home prices began to fall in the past year after interest rates rose in 2005.
  
  U.S. stocks fell sharply and bond prices rose on Tuesday after the Mortgage Bankers Association reported delinquencies rose in 49 states and among all loan types in the fourth quarter of 2006, with the steepest increase in defaults seen in subprime adjustable-rate loans.



• Foreclosures May Hit 1.5 Million in U.S. Housing Bust

  March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse.
  
  As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.
  
  The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.
  
  ``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.''
  
  A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.
  
  

And now we see this impacting the entire world economy.
Wall Street’s weak start adds to markets woe

Wall Street renewed its downward slide on Wednesday, dipping below 12,000 as investor confidence continued to be hit by the crisis in the US subprime mortgage market.

Wall Street initially flirted in and out of positive territory but later later slumped as trading continued. Shortly after midday on Wall Street, the S&P 500 index was trading 0.35 per cent down at 1,373.17 while the Dow Jones Industrial Average was 76.10 points lower at 11,999.86.

The falls came after an earlier rout of European and Asian equities. In Asia, the sell-off was broad and deep on investors’ worries that the subprime mortgage problems could hit the US housing market and the broader US economy – a big export market for many of the region’s companies.

The Tokyo stock market plunged 2.9 per cent, Singapore by 3.3 per cent, Mumbai dropped 3.5 per cent, Hong Kong by 2.5 per cent and Shanghai by 1.9 per cent.

In Europe, heavy falls were also seen as rattled investors offloaded stocks By late afternoon in London, the FTSE Eurofirst 300 index was down 2.24 per cent while the FTSE 100 index in the UK had slumped 2.17 per cent.

Elsewhere, the Xetra Dax index lost 2.3 per cent in Germany, the CAC-40 index by 2.1 per cent in Paris and the Swiss market fell by 2.6 per cent.

Now it was not a matter of if this would occur but when. I discussed this in June, 2005 in
Booms are always followed by busts!The so called Bush recovery was entirely a credit driven recovery. I quoted The Austrian Theory of the Trade Cycle

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy's capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.

This boom was fueled not only with credit but credit to people who had no chance of paying it back. This bad lending was not only allowed but encouraged by Alan Greenspan and the federal reserve for what can only be seen as political reasons; to make sure that the economy still appeared to be booming for the election in 2004. The boom is over and the bust is here.