Subprime is Officially Melting Down

Those of us who have been saying for a while that our subprime problems are far from done have been feeling validated over the past few weeks. Here's why:

• Two weeks ago a Bear Stearns hedge fund blew up forcing Bear into a $1.6 billion bailout. That sent Bear's stock tumbling and Bear's CEO James Cayne to the golf course? Yes, that's right Mr. Cayne dealt with a tough situation by pulling out his driver. Check out his scores over the past few weeks below: If you look at Cayne's scorecard you will notice that on June 21st, the day several big lenders were pressuring Bear to increase collateral, Cayne shot a 98. On the 22nd when Bear announced what was then a $2 billion bailout, Cayne shot a 97. How he found 8 hours over those two days to play golf is incredible! I have to admit I admire his persistence, even after this story appeared in the press Cayne has continued golfing and his scores are actually improving!
  
• The ABX BBB Index has fallen consistently from its highs in the 90's at the beginning of the year and is now trading in the 40's with no signs of stopping. No one wants to hang on to subprime debt . . .
• Moody's and S&P completely missed the subprime fiasco, and they are now furiously downgrading subprime bonds and the CDO's that hold them. Moody's said today they are going to cut the credit rating on slices of $5 billion worth of CDO's. This a day after S&P decided to cut ratings on $12 billion of bonds and revamp their entire rating methodology. Fitch also sounded an alarm today about commercial real estate, predicting rising defaults in the months to come. Below is a graph of the number of bonds Moody's has downgraded over the years. Too little too late if you ask me:
• The National Association of Realtors is lowering its 2007 sales predictions again! What good is a prediction if you lower it every single month?
  

Yes folks this subprime thing isn't over yet. The foreclosure statistics for June come out this week and as of two weeks into the month San Diego was on pace for a 36% rise in foreclosures from an already elevated number. Yes, folks, the bottom is falling out of the housing market.