Wall Street Injects Poison Into The Housing Market
In the leading anecdote in a front page story, Gretchen Morgenson tells on how, on March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on New Century Financial, the Orange County writer of sub prime loans.
The report by Scott R. Coren came at a time when New Century Financial stock had already plummeted from 66 to 15, and had lost half its value in three weeks. In the week after Coren was upbeat, the firm announced it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21
Comparing the situation to the collapse of technology stocks in 2000, Morgenson noted, "Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risk 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."
Coren is like another business failure, Dennis FitzSimons, the inept CEO of the Tribune Co. He does not want to face the music. When he was approached by the New York Times for comment on the poison he had dealt to Bear Stearns investors with his ridiculously optimistic statement about New Century Financial, he declined comment. But this man not only lacks a tongue; he lacks a brain.
Coren should be banned from Wall Street firms for life, just as FitzSimons should be excluded from the newspaper business. Do such lunkheads have more than elementary school educations?
The fact is that foolhardy businessmen and stock analysts could ruin the American economy. As the housing crisis gets worse, the responsible firms decline to even warn their investors of tough times ahead.
And it is not only sub prime lending -- to people with poor credit histories and no money for down payments -- that ia falling into the abyss. The New York Times reported Saturday that some high-end real estate developers are being hit by the slowdown. They are abandoning projects right and left, because sales have collapsed due to would-be buyers' inability to secure vanishing loans.
Even the new leadership of the Federal Reserve Board has been slow to grasp how devastating the present housing situation is. The Fed's chairman, Ben S. Bernanke, continues foolishly to sound an optimistic note, even while his much more astute predecessor, Alan Greenspan, warns of a possible recession.
In short, things are tanking, and neither Wall Street nor the federal economic regulators, are up to dealing with it. We've seen this situation occur before, but nothing has been learned by those who need to learn the most.