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Witches Brew

It was about this time last year the storm clouds were gathering. People in the debt markets were getting nervous, the subprime mortgage market was collapsing as housing prices declined and interest rates ticked up. The National Realtors and other trade groups had earlier prognosticated housing prices...

By Jonathan D. Miller | Updated on July 14, 2008

It was about this time last year the storm clouds were gathering. People in the debt markets were getting nervous, the subprime mortgage market was collapsing as housing prices declined and interest rates ticked up. The National Realtors and other trade groups had earlier prognosticated housing prices would be increasing by then and that any housing downturn would be shallow, but no such luck. Despite the CDO market blowing up and widening CMBS spreads many players put on brave faces and figured the credit markets would settle down in a few months (by year end) and the strong fundamentals in commercial real estate markets would hold the day. It would be a repeat of the 1998 Russian credit crisis, some short term pain, but a bump in the road.

Then we had Citibank reeling, Merrill Lynch firing its CEO, one large investment banking writedown after another, the Bear Stearns debacle, rumors about Lehman Brothers, and now in short order the IndyMac collapse and pending Fannie/Freddie bailout. The idle talk on the street is that more regional banks will tank as defaults and foreclosures ramp up in both the residential and commercial sectors, and inevitably a major money center bank will go down for the count before we hit bottom.

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