{"id":199441,"date":"2007-07-30T05:19:00","date_gmt":"2007-07-30T10:19:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2007\/07\/30\/its-not-just-subprime-home-loans\/"},"modified":"2007-07-30T05:19:00","modified_gmt":"2007-07-30T10:19:00","slug":"its-not-just-subprime-home-loans","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2007\/07\/30\/its-not-just-subprime-home-loans\/","title":{"rendered":"It&#8217;s Not Just Subprime Home Loans"},"content":{"rendered":"<p>It appears that <a href=\"http:\/\/www.ft.com\/cms\/s\/06371f56-3ada-11dc-8f9e-0000779fd2ac.html\">many of the companies that borrowed through the subprime market will take it on the chin<\/a>.<\/p>\n<blockquote><p>The report shows that about $680bn of loans will mature between 2008 and 2011 compared with only $180bn of maturing high-yield bonds.<\/p>\n<p>Mariarosa Verde, head of credit research at Fitch, said the loan market was \u201ccritical to the wellbeing of these companies\u201d.<\/p>\n<p>Many highly leveraged firms rely on their ability to roll over existing loan debt into new loans rather than repay it when it matures, which they often cannot do.<\/p><\/blockquote>\n<p>The basic calculus is this:<\/p>\n<ul>\n<li>Longer term loans are far riskier to the lender.  It ties up the capital for a longer period, and there is a greater risk that the interest fall below market rates.<\/li>\n<li>Risk requires greater return, so long term bonds are more expensive<\/li>\n<li>Companies that get junk bonds cannot afford the rates of longer term loans, so they get short term ones, and roll them over at the end of the term.<\/li>\n<li>When these loans come due, they refinance.<\/li>\n<li>If rates have increased significantly, they take it on the chin, bankruptcies and liquidation.<\/li>\n<li>This increases the risk, and hence the interest rates, putting more companies at risk.<\/li>\n<\/ul>\n<p>Greenspan&#8217;s policy of flooding the market with liquidity after the dotcom crash will have dire consequences in the next few years.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It appears that many of the companies that borrowed through the subprime market will take it on the chin. The report shows that about $680bn of loans will mature between 2008 and 2011 compared with only $180bn of maturing high-yield bonds. Mariarosa Verde, head of credit research at Fitch, said the loan market was \u201ccritical &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1261,973],"tags":[],"class_list":["post-199441","post","type-post","status-publish","format-standard","hentry","category-bubble","category-economy"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/199441"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=199441"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/199441\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=199441"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=199441"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=199441"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}