New Century files for Bankruptcy.

Well it looks like another sub-prime mortgage lender in the states is down for the count – New Century Financial filed for chapter 11 bankruptcy today and announced that they will fire 3200 employees. The thing that makes this a story to pay attention to is the fact that more than 2 dozen subprime lenders have shut down in recent months, New Century is just one of the latest. According to ml-implode.com 47 lenders have shut down since late 2006.

This could pose additional problems for the US housing market as foreclosed homes are added to the supply side while potential buyers with poor credit ratings are taken out of the demand side of the market.

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patriotz
patriotz
13 years ago

Their figures show US R&D to be 35% of the world’s gross expenditure on research and development (GERD), and getting smaller each year.I also forgot to add – how much of this R&D is on weapons? Great economic return on that.

blueskies
blueskies
13 years ago

When appreciation disappears … core leak cap'n! Is this really NOT a problem in Canada? If the number of short sighted greedy home owners that get involved with the MEW/HELOC paradigm is comparable to the Americans then your theory will be sorely tested…. and I believe there will be some pain.

Jesse
Jesse
13 years ago

I like this CBC article on purchase+improvement mortgages. From the article,"There are five factors that lenders look at when determining how much a consumer can borrow for their mortgage: the income of applicants, their credit history, the amount of down payment available, their net worth and the type of home they're buying.The fifth point provides the lender with security if, for some reason, the borrower defaults and the property must be sold to cover the debt."What is scary is there is nothing preventing lenders from putting lots of weight on point #5, even on conventional mortgages, when the market is hot. When appreciation disappears … core leak cap'n! Is this really NOT a problem in Canada?

duck
duck
13 years ago

From time to time a post here will remind me of a Calvin and Hobbes cartoon. Calvin was handing in a report that was going to impress his teacher … it was comprised exclusively of made up facts … he "knew" he would get an A because of his ace in the hole — a shiny, see-through report cover. Well, I guess there's no shiny report covers in a blog.

rentah
rentah
13 years ago

By the way, to show you how peverse a contrarian I am after posting that FT link: I think the US $ just might bounce here.

rentah
rentah
13 years ago

Thanks for the discussion, all.And thanks for the UNESCO link, alphabear.I've tried unsuccessfully to find a graphic I'd seen about five years ago showing country of origin of articles in physics journals, with the US declining and Europe/Asia increasing such that more articles now originate from outside the US. If there is a trend, it is away from the US.And by co-incidence, this just in from the Financial Times:'Europe has eclipsed the US in stock market value for the first time since the first world war in another sign of the slipping of the global dominance of American capital markets.'

Alpha_Bear
Alpha_Bear
13 years ago

"The US produces 50% of the world's R&D."Not according to UNESCO. Their figures show US R&D to be 35% of the world’s gross expenditure on research and development (GERD), and getting smaller each year.

patriotz
patriotz
13 years ago

The US produces 50% of the world's R&D.What % was it 50 years ago? What's the trend?Americans have won 48% of the Nobel Prizes. The rate has been accelerating in recent years.Which Nobel prizes? Over what period? Anyway, that means next to nothing in economic terms. Who was the last Swiss to get a Nobel Prize?As for savings, the world's savings are correctly going where they get the most bang for the buck.Right you are – financing McMansions and Uncle Sam's deficits. Most bang for the buck for the lender, not the borrower.

Jesse
Jesse
13 years ago

"As for savings, the world's savings are correctly going where they get the most bang for the buck."True though a depreciating US dollar offsets some of this. Again, it is innovation and labour force flexibility that can ultimately keep the economy out of recession.

chip
chip
13 years ago

It's kind of hard to retool a casino economy to make things of real value. It requires things like savings, real skills and innovation, and delayed gratification, all of which are out of style in the US these days."The US produces 50% of the world's R&D.Americans have won 48% of the Nobel Prizes. The rate has been accelerating in recent years.As for savings, the world's savings are correctly going where they get the most bang for the buck. See above.

patriotz
patriotz
13 years ago

The US needs to get the workers in construction, real estate, and lending into money-making industries prontoYeah like what? It's kind of hard to retool a casino economy to make things of real value. It requires things like savings, real skills and innovation, and delayed gratification, all of which are out of style in the US these days.

digi
digi
13 years ago

Asides from being the latest sub-prime lender to collapse, New Century is the second largest sub-prime lender in the States.. This thing is hitting lenders of all sizes.

duck
duck
13 years ago

Residential construction is tanking in the US, and non-residential will presumably follow. There goes half a million or more jobs within the next half year. That should have an effect on the US economy.

slugora
slugora
13 years ago

It will take time for this to filter through to the fragile housing market, as it takes time for foreclosures to be processed and served. More foreclosures will put more pressure on prices, which will generate more foreclosures….one will feed off the other.The real significance of this wont show up until the May numbers are reported a month later by the US housing report….then watch out for all hell to break loose.

Jesse
Jesse
13 years ago

"Why isn't the market reacting more to this?"The new catchword amongst economists these days is "contagion." Apparently there is not much of it right now. There was a similar scare with Amaranth last year and its effects did not show up much overall. You can contrast the two if you want. There are a few differences of significant note.The US needs to get the workers in construction, real estate, and lending into money-making industries pronto, and hopefully with similar wages to what they had before. We will soon see how flexible the US labour force really is.

Warren
Warren
13 years ago

Why isn't the market reacting more to this? The only thing I can think of is lending trouble = no chance of Fed raising rates = market is happy.I've heard stories that this is starting to hit new car financing as well.

the pope
the pope
13 years ago

thanks to paul for the ml-implode link.