It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one.
We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There’s even a growing recognition that a recession is over the horizon.
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To get started, let’s stipulate that the Great Housing Boom of the past decade was not a housing boom–it was a speculative debt-fueled bubble which happened to occur in the asset class known as real estate. As a speculative bubble, it shares the same characteristics as other speculative manias in tulips, stocks, toilet paper, etc.
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“Lehman Brothers announced today that market conditions have necessitated a substantial reduction in its resources and capacity in the subprime space,” the firm said in a news release.
Lehman’s decision to shutter the lending unit, BNC Mortgage, makes it the latest casualty in the subprime mortgage meltdown that started earlier this year and rippled into the broader credit markets starting in late July.
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First National Bank of Arizona has become the latest casualty in the mortgage collapse that is gripping U.S. lenders. The privately held bank has shuttered its wholesale mortgage lending division, according to mortgage brokers who have spoken with the lender.
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