Is the Worst Yet to Come?

Okay. So the Fed bailed out the hedge funds holding subprime debt, which is going south due to rising foreclosure rates among low- and moderate-income folks who bought overpriced homes with teaser-rate mortgages. But is the worst yet to come? This from the morning Wall Street Journal:

Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble. First, you have hundreds of thousands of U.S. households who are insolvent on their mortgages. And this is not just a subprime problem: the same reckless lending practices used in subprime – no downpayment, no verification of income and assets, interest rate only loans, negative amortization, teaser rates – were used for near prime, Alt-A loans, hybrid prime ARMs, home equity loans, piggyback loans. More than 50% of all mortgage originations in 2005 and 2006 had this toxic waste characteristics. That is why you will have hundreds of thousands – perhaps over a million - of subprime, near prime and prime borrowers who will end up in delinquency, default and foreclosure. Lots of insolvent borrowers. – Nouriel Roubini, Roubini Global Economics

Curious about what he meant by the "Minsky credit bubble"? You can find out, and get a fully explanation of why he believes this credit crunch crisis is far from over, from this blogpost on his website.