Friday Morning: NY Times: “Smart Money” Betting on Subprime Comeback

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This story from Friday’s New York Times is pretty important: the headline reports ‘Big Investors Jumping Back Into Shaky Home Loans.’
Highlights: ‘The subprime mortgage business is in tatters ... some of the biggest lenders have cut back or shut down.’

‘So what is the smart money — private equity, hedge funds and investment banks — doing? They are swooping in and taking over those battered businesses, seeing opportunity amid the wreckage ... betting that the market will snap back quickly.”

‘It is a risky proposition. ... ‘’The reality is that the mortgage business for the foreseeable future is not a growth business,” said Jeffrey Kirsch, president of American Residential Equities.

Why we think this is important (Bloviation Alert): Because, in our opinion, The Housing Bubble is not really about housing at all. It’s about credit. (Why is a Santa Monica condo worth $800,000? Because lenders will fight each other for the chance to loan someone $800,000 to buy it.) As long as Wall Street keeps buying these loans, prices will not collapse. And this article in Friday’s New York Times says that investors are willing to keep the credit flowing. That’s important, we think.

But enough about us. What do you think?
Photo Credit: AP