sub prime not the end of the world, page-5

mbeard, it's not just about numbers, unfortunately, although they have a bigger impact than you think as described in other posts.

There is a big lack of knowledge. Nobody knows how much subprime debt is out there, or how much anybody owns. Even many owners of subprime cannot tell yet what their exposure is. This creates fear in the lending market, so liquidity dries up and we see the chaos caused a couple of weeks ago when that happens.

To expand on the American consumer, last year they took $800bn cash in home equity loans. That is equivalent to their trade deficit, or 7% to 8% of GDP. That source of financing has stopped. Now. Dead in the water. Partly because of that cessation of funding, we are now seeing credit card delinquencies rising faster. Credit card debt has also been bundled up in CDOs and sold all around the world (maybe Manly Council are busily checking to see if they have any of THAT debt too!) adding to the fear amongst bankers as to for what they are lending to whom. The liquidity dried up because international banks wouldn't lend to EACH OTHER, because they were worried about the safety of the other bank. If the banks won't lend to each other, they certainly won't lend to you and me (unless we put 80% down, earn 20x the loan amount and pay 12%!).