French Began Subprime Credit Woes

Many lenders are stuck with Alt-A Loans which go by the name of liar loans since they required no proof of income. These subprime loans hurt everyone; the lender and the borrower when the chickens come home to roost.

It all started with the French. Interestingly, the credit contagion spread after French banking giant BNP Paribas froze 2.2 billion worth of funds tied to U.S. subprime debt saying that that debt lacked market liquidity which in turn made it impossible to assess their value.

Days later the Fed had to add $38 billion to the reserves by bailing out questionable debt and taking a lot of mortgage-backed securities as collateral. The Central banks worldwide are reported to have injected 326.3 billion shoring up the debt market.

Low interest rates after 9-11 fuel another round of real estate appreciation frenzy. The buying binge in real estate sent prices soaring and lenders extended credit to borrowers with shaky credit. Now easy credit is ending and the lenders who made foolish loans are on the verge being bailed out by the taxpayers.