Will the collapse of the subprime lending market trigger an economic crisis?
*Financial Times, by Ben White & Michael Mackenzie, March 13, 2007
“The rapid decline of New Century, the latest problem at US subprime lenders, raised concerns that problems could spread in the $8,000bn mortgage industry and to other parts of the capital markets.
Reaction in the markets was muted. US government bonds rallied as investors shifted cash into the safety of Treasuries. Stocks edged slightly higher, though shares in other subprime lenders continued to fall.
Shares in Countrywide Financial, the fourth-largest US subprime lender, fell almost 3 per cent to $35.14 after the company said foreclosures hit a five-year high of 0.70 per cent in February and that turmoil in the subprime market could hurt earnings.
Market participants were also braced for the possibility that if New Century collapsed it could lead to broad investigations into practices across the subprime lending market.
Some economists also fear that the collapse in subprime loans could trigger wider house price falls.”
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