What is going on with the markets? Are the markets in meltdown because of the sub prime debacle? Why is Bear Stearns, Deutsche and JP Morgan all warning of “contagion”. Anyone would think we were living through some kind of medieval plague. Peddling this type of doom and gloom is a classic tactic of the market makers keen to to drive down prices by panicking the unsophisticated into selling and tripping the stops of the electronic herd.
However, who are real victims of sub prime? Is it those the investors persuaded to invest in this market with a promise of stellar returns or those at the bottom of the financial food chain, ie, the financially naive with a bad credit history. When money is cheap interest charged to this group is always much higher thereby providing lenders with much better returns.
However, when interest rates start to rise, because of inflation fears, it is this group which alwys suffers first. The problem here has been reckless and inappropriate lending by those who should have known better.