He didn’t mention Countrywide, Bear Stearns or Wells Fargo specifically, but they’re all obviously in varying degrees of trouble. I’d say Countrywide has the most risk of the three, followed by Bear Stearns and Wells Fargo, respectively. Wells’ exposure to the mortgage business, while large in an absolute sense, is probably the smallest of the three relative to their total business and balance sheet. But I don’t know what volume of LBO pier exposure Wells has, while we know that Bear Stearns has some and Countrywide practically none. That’s probably not very helpful, but that’s all I know.
HereWeGo, you’re mistaken if you believe this is simply a short-term interest rate issue. It is not. It’s a “risk premium” issue. Here’s the problem: even if the Fed lowers rates to 2% tomorrow, the institutions that made the ridiculous 2/28 and 3/27 subprime loans won’t be loaning out at the 2004-2006 teaser rates (2%-4%). The market won’t take the paper. Those days are over for the foreseeable future. The problem is the risk premium that gets attached to whatever “base” teaser rate the lenders need to charge (to sell the paper) is now considerably higher and will remain so for quite some time. This increased risk premium will offset any decline in funding costs. In other words, short-term rates could plummet but mortgage rates for subprime/non-conforming paper probably won’t budge (that is, unless they go higher). The market has a newfound respect for risk premia and that won’t change anytime soon. Believe me, most of these problems will not “simply disappear.” I think you have a misunderstanding of the problem.
