August 24, 2011
It has been nearly four years since the US banking sector has been imploding due to the millions of bad mortgage loans made during the housing bubble:
June 2007: Subprime mortgage firms collapse like dominos under the weight of bad loans; Bear Stearns bails out a hedge fund loaded with junk debt.
January 2008: In what will turn out to be a poison pill, for $4.1 billion, helping Countrywide avert bankruptcy, and handing BofA a fat portfolio of toxic loans.
March 2008: Investment bank Bear Stearns collapses and is acquired by JP Morgan in a shotgun wedding arranged by the Federal Reserve.
September 2008: In one weekend, Lehman Brothers files for bankruptcy, insurance giant AIG gets a federal bailout, and Merrill Lynch is bought by Bank of America in yet another rescue buy. The nation's largest savings & loan, Washington Mutual, collapses. Something close to sheer panic reigns on Wall Street.
November 2008: Citigroup, struggling with $300 billion in toxic assets, is bailed out by taxpayers.
March 2009: the Standard & Poors 500 Index hits bottom, down 57% from its October 2007 peak.
There was more, much more, but this is a blog post, not the Great American Novel, so that's plenty to make my point. Why do I bring this up today? Because now rumors are swirling on Wall Street that JP Morgan may buy Bank of America (with assistance from taxpayers, of course). Time will tell if the rumors are true. But what is clear is that the effects of bad mortgages overhanging our financial system are still being felt. Four years in, and subprimes still have the power to sink even the biggest banks.
GTC
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).