TEXT OF STORY
Doug Krizner: The markets have been troubled by the continuing fallout of the subprime mortgage mess. Yesterday Fed Chair Ben Bernanke said subprime losses could reach $100 billion, and investment banking giant JP Morgan Chase said the worst may not be over. Ashley Milne-Tyte reports.
Ashley Milne-Tyte: The market in bonds backed by mortgages has tripled since 2000.
Real estate analyst Mike Larson is with Weiss Research. He says given the amount of money invested in these types of bonds, it’s no wonder the pain of the melting mortgage market is so widespread.
Larson says investors in these and similar securities won’t see losses slow till the end of next year at the earliest.
Mike Larson: In the worst-case scenario, some funds will be practically wiped out, like we saw with the Bear Stearns funds announced this week. In other cases they’ll just be write-downs, but it won’t cause the entire fund to go belly-up. But this is a gonna be a problem we’ll be dealing with for some time.
Larson says things could improve if house prices go up, or if interest were to fall so borrowers could more easily pay back their loans.
But he’s not optimistic about house prices, and the Fed signaled this week that it probably won’t cut rates in the short-term.
In New York, I’m Ashley Milne-Tyte for Marketplace.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?