Who Benefits From the Subprime Crisis?

The parties who are suffering from the subprime crisis are vast and varied, as well as in the newspapers every day. One reason the crisis has gotten so much attention, in fact, is because these parties are so vast and varied. The typical financial crisis has one or two big villains (think Enron) and a vague coterie of victims (think the S&L scandal). In this case, there are many villains, from the local to the global level, and, similarly, the victims range from homeowners losing their homes to high-level bankers whose propped-up investments fell down.

But for all the suffering, someone’s got to be benefiting from the crisis, right? That is the nature of the market game.

Consider, for instance:

1. The software company Autonomy, jointly based in Cambridge (U.K.) and San Francisco, whose stock price and profits are climbing because “most of the world’s leading banks were considering using its software to prepare for lawsuits related to the U.S. subprime mortgage crisis.”

2. The attorneys who will be participating in those suits.

3. Prime borrowers who have seen mortgage rates fall to the lowest rates since 2005, and especially borrowers who may see the ceiling for “jumbo” rates rise by more than $300,000. Also, of course, first-time home buyers who have been waiting for prices to fall.

4. People who have spent the past 5 or 10 years stocking up on gold.

I’m sure these parties represent just the tip of a big iceberg. So for those of you out there with more information, please let us know who else stands to benefit from the continuing subprime mess.


Charles

Biggest winner? I'd say Stan O'neil. After leading Merrill Lynch to $8.4 billion in write offs he's fired and given roughly $250 million for his failed effort.

I wish I could get millions of dollars for screwing up.

David

Anyone who shorted the market, bet against the banks with a swap, other derivatives, etc. The list would include Goldman Sachs, hedge funds, etc.

Jason Goodman

The odd thing about a loan default is that the losers are in the present, but the winners are in the past. Where did all that mortgate money go? It went to realtors, to construction firms, and to people who sold their homes at a premium between 2001 and 2006. Those are the winners.

the Gooch

The people who can't afford houses that got to live in one way beyond their means the last few years are the real winners. Even if they get foreclosed now, it was a good ride while it lasted.
Living beyond your means is the American dream, and these lucky not-so-few reached the pinnacle.

Julian

Anyone short the ABX, most notably John Paulson - see WSJ story at http://online.wsj.com/article/SB120036645057290423.html

Austin

Mr. Moran, I believe your caps lock key is on.

Also, anyone involved in stripping down foreclosed homes and selling the scrap is definitely making a profit here.

STEVE

The real winners in this so called 'crisis' are those who created, rode the bubble and got out before it popped.

Lets give credit where credit is due. When rates were cut to 1% people went nuts. Don't blame lenders and borrowers for being pigs when the Fed set the table!

Moving forward, the next set of winners will be able to spot the next bubble and bet accordingly.

Peter

How about landlords? Now that it's become harder for people with impaired credit to get mortgages, more of them will be renting, and that will increase the rents landlords can charge. And of course you have all the people who've lost their houses to foreclosure, they have to live somewhere.

deron

a) Where'd the money go? On refinances it went to pay credit cards. Sub-prime gets the blame for being at the end of a chain of problems. A lot of mortgage money went into consumer's pockets, which helped drive quite a bit of consumer spending.

b) Benefiting now is any new buyer who can afford to buy a house now, because the price is no longer inflated, and prices will actually be within FHA limits.

c) Landlords benefit. As people who should not be homeowners get back into the rental market.

d) Many tax payers benefit as their property taxes come back down to rational levels. Though, at least in my locality, government is hurt because they have less money to waste.

While many blame the consumer for not paying attention, it can't be ignored that consumers are hopeful about their prospects. They expect pay increases, better jobs, etc. Getting 3 to 5 years down the road and finding that their income situation is no better, but and their expenses are worse has hurt a lot of people that aren't written about. The hairdresser with a 500,000 subprime loan is a great anecdote. Far more common is the service industry employee who hasn't seen any improvement in income even as expenses rise, or the D.I.N.K. couple who loses one of the incomes.

That this situation occurs when the economy is deemed to be "healthy" strikes me as a flaw in the definition of a healthy economy.

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Casey Barker

Oh, come on, guys... All the lawyers, software guys, and gold investors are just riding waves of economic friction resulting from our legal system, and/or the fed's manufactured dollar implosion. Their gains are just side-effects, purely orthogonal to the subprime bubble-popping at hand.

The thing about a bubble pop is that the benefits have already been paid out to the "villains" by the time the bubble bursts--with the "victims" left holding the bill--in a zero-sum game.

So who are the "villains" that took benefit from this subprime mess? Well, anybody who sold their property in the run-up. Any builder who sold property in the run-up, and anybody who sold their material or labor to the builder. Anybody who took a loan against their inflated appraisal and got to enjoy a boat or car or plasma tv they couldn't otherwise afford, before defaulting. And anybody who gained from selling those goods (or the questionable mortgage). So in effect, the whole economy benefited from the run-up. It deferred the pain of the late-90's stock bubble pop.

Sure, there was some inequality in this redistribution of the wealth, but it was ultimately a closed-loop. Not a whole lot of value was actually destroyed, it was just mis-marked along the way. So if there's a "villain" in this, it has to be all the rest of us who didn't get stuck paying off an underwater mortgage or holding defaulted debts. We got to benefit from the hot economy and aren't left holding the bag. (Though, if your savings are in dollars, the fed is doing their best to make sure that you get at least a little slice of pain...)

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TJ Colatrella

We could solve this Sub Prime Mortgage Crisis by simply Pegging these Mortgages at 2-3% above Prime..and forgiving all penalties to date 1/2 of which are illegal as reported and the rest suspect and unethical, if not immoral as well..

This would isolate the solution to those directly involved the lending institutions and borrowers alike and spare the American tax Payer from bailing out these banks and institutions who themselves are suffering under the "Blood sucking rates Usery" our Congress has allowed the Credit Card companies to inflict upon the average America as Congressmen Obey expressed two years back and was correct..!

Also this would spare these mortgage owners the trauma of foreclosure and eviction and the terrible downward pressure this will put on the already inflated and limited rental market..thus effecting those who can least afford it the renters who will never likely be able to pursue the dream of home ownership..

Peg these sub prime mortgages as 2-3 % above prime the banks get paid back and don't have to borrow from foreign entities and also pass that along or the Tax Payers bail these institutions out with a federal Bail out upon which as the Federal reserve issues this money to pay back to itself we the American Tax Payer must the re-pay them wit interest..!

You see a perfect loop..!

Another thing is many do not know that when Bernanke Cut these Prime rates twice recently this Caused many Mortgages to go Up, not down as explained in this great article from Market Oracle

http://www.marketoracle.co.uk/Article3570.html

Why can't we peg these Mortgages at 2-3% above prime and solve half of this financial crisis and avert a huge housing crisis as well..?

It's the smart thing to do and what's best for our Nation..!

Simple as that..!

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Robert

Nobody really, well a few who come to scoop up the properties to rent to the newly homeless.

Also, don't worry that credit card companies will because once you loose your house, that asset can't be touched. Credit card debit is very easy to walk away from, and if you've just lost your house under foreclosure, stopping payment on credit cards will do nothign worse to your rating...it can only fall so far....then you can do anything.

Of course if you can pay you do, but if you can't walk away...it's over.

David

Intex Solutions, INC. -- insustry standard analytic software for mortgage backed securities.... everyone needs a calculator to count how much money they lost

Bill

John Paulson, for one. He "went short" on the mortgage market and made $3-4 billion.

http://online.wsj.com/article/SB120036645057290423.html?mod=hps_us_pageone

Scott Supak

J.BRIAN MORAN!!!!!

Why are you screaming. Funny how you only mentioned Schumer and Frank. Nobody across the aisle deserves your ALL CAPS tirade?

Here's one set of people who have read the fine print on just about everything: Bottom feeders. A Republican I know, a particularly repugnant one at that, is buying up short sales all through my neighborhood, and renting them. While his renters pay his mortgage, he'll be riding high when the dust settles.

Kevin

I guess I consider myself a "winner" as I have been looking to buy a house since about 2004, and have been utterly unable to do so. I am young, but have a considerable salary, making well above the median household income in my hometown suburb of NYC, and couldn't understand what I was doing wrong when I could not afford even the rattiest shack in my neighborhood. By conventional standards, I could only afford tiny homes in the worst towns on LI, or move out into the 2+ hour commuting range.

So I stayed out of the market, hoping to slowly hoard cash until I can afford something decent, or the market came to its senses. It appears the market is finally facing reality, and I see the ~10% price drops in some areas just a foreshadow of what is going to occur. 3 Bedroom houses on 40x100 lots an hour+ from NYC are just not worth 400k.

Audra Hodgin

I am a real estate agent in Indianapolis, where we never had the bubble, but where we're getting the bust anyway - our median house price has hovered around $120,000 (no, that's NOT a typo) since the late 1990s. Until the crisis "started" in bigger states, Indiana led the nation in foreclosures month after month (we're still in the top 10). Realtors here didn't clean up like our friends on the coasts, but most are feeling the pain as mortgage options dry up and the buyer pool keeps shrinking (along with prices). HOWEVER - I am a winner out of sheer luck - I joined a brokerage that specializes in selling bank-owned homes this year, and our business from banks has doubled since last spring. It's not a glamorous job - my boss got caught in a drive-by last fall, and most of our houses sell for less than $10,000 - but we seem to be the only agents in town without free time on our hands. Still, it doesn't feel like "winning" all the time - we are benefiting from other people's misfortunes and mistakes.

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John Stalls

Bankruptcy attorneys benefit from most economic crises and downturns.

This particular crises will benefit both consumer and business bankruptcy attorneys. Consumers, faced with adjusting rates and other hardships, will file at increased rates. Many subprime lenders (e.g. New Century, American Home Mortgage, etc.) have already filed and many others will come. Related industries and consumer products providers who rely on the housing market may be troubled as well. Think furniture makers and retailers, moving companies, etc.

reddoorhomeloans.com

Some investors benefited. I read about a guy who bought some loans for $1 billion. The company had a certain period of time to get its ducks in a row and buy back the loans for a set amount. From the way the deal sounded, this investor was going to benefit greatly either way.

Jay Teo

I'm surprised nobody mentioned Angelo Mozilo.

Do you think he was stupid and made an honest mistake taking Countrywide in the direction he did? Of course not. He knew that subprime is coming back to bite eventually, but not before he cashed out his hundreds of millions.

Who was he stealing from? Shareholders who bought high, of course. And everybody else who is now paying for his crime in the form of funding the stimulus package.