Subprime 101 in Chinese

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This is a link to Caijing mag, about the US subprime loans, or Mei Guo Ci Ji Zai. All articles are in Chinese.

I found this article particularly interesting. And the following excerpt very entertaining (I can imagine Cramer’s body language when he shouted).

而更有人直言,本届联储主席伯南克很可能低估了信贷危机的严重程度。惯于以近乎撕心裂肺的腔调在CNBC电视台评论股市的著名财经主持人吉姆·克雷默(Jim Cramer),在8月10日本周股市收盘后,就大喊伯南克对信贷市场“毫无了解”。

Basically Cramer is saying Mr. Bernake, the US Fed chief, does not have any ideas about the US credit market. That certainly is not true. The story goes like this: the US investor bankers, mortgage companies created subprime loan and hedge fund. They made lots of money in the past 5 years. Now (suddenly) they found out many people can not pay the mortgage, and they are going to lose big. So they went to the Fed chairman and said: you should lower the interest rate and bail us out, otherwise the US economy will crash. On the other side of the story, many American are losing their homes because they can not pay the mortage, and the housing prices continue to decline.

Do you think the Fed chairman should listen to Cramer?


  1. Cramer might not just concern on Subprime Mortgages in housing market. he concerns the dominos affect beyond unless the fed steps in. thighting credits may cause the economic slow down.

  2. Cramer was exaggerating, like always. He has good knowledge, but he likes exaggerate things to attract people.

    Subprime issue itself is not that bad. Housing market is slowing down, like it has been. No big supprises here.

    It is just the financial market is in the circle of funds sell position, market down, funds sell more position… But housing market is still in its own pace… to slow down.

    Market may go down for a while, but economy won’t, that is the bottom line.

  3. I think the problem is now many banks and investors are losing cofidence on the bond, credit market in general. The “subprime” is a tip of iceberg. Itself should not destroy the US economy or stock market. The problem is we don’t know how big the problem is (uncertainty), and we don’t know what’s the next? If those investor banks and hegde funds could package the subprime and sell to investors as “great investments”, could they do similar things to other bad meat?

    Also, the US economy is very much dependent on consumer spending. Not sure how much effect subprime will have on consumer spending. But the slow down of housing market will. Because lots of people use housing as ATM machine.

    trader168 copied some experts opinion on this,

    I put Buffett’s thoughts here:

    Many institutions that publicly report precise market values for their holdings of CDOs and CMOs are in truth reporting fiction. They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth.

    Because many of these institutions are highly leveraged, the difference between “model” and “market” could deliver a huge whack to shareholders’ equity. Indeed, for a few institutions, the difference in valuations is the difference between what purports to be robust health and insolvency. For these institutions, pinning down market values would not be difficult: They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding.

    In one way, I’m sympathetic to the institutional reluctance to face the music. I’d give a lot to mark my weight to “model” rather than to “market.”

    The original article is form CNN Money.

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