Markets in crisis: will it get worse? | Business | The Observer: "It is not only the direct losses from sub-prime defaults that are troubling investors: it is the fear that lenders, jolted by the scale of defaults, would take a long, hard look at their portfolios. Since mortgage debts are now often bundled together, repackaged and resold in complex new financial instruments such as 'collateralised debt obligations' (CDOs), no one is quite sure where the buck stops. Many US banks - more than at any time since the recession of the early 1990s - are already tightening their lending criteria (see chart), but the fallout is likely to spread well beyond households looking for a mortgage.
Charles Dumas, of Lombard Street Research, speculates about the frenzied conversations that will have been taking place in bank boardrooms on both sides of the Atlantic since the fallout from the 'toxic waste' of sub-prime lending began to spread.
Chairman/CEO: 'How much of this stuff do we own, and what's our exposure - to hedge funds owning toxic waste, as well as to the waste itself?'
Chief credit officer (I paraphrase): 'I haven't the faintest idea.'
Chairman/CEO: 'You've got two weeks to sort it out, and meantime no more lending.'"
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