From what I saw in today's Sunday Herald, I think this one will be seeing a lot of traffic over the next year. The Sunday Herald has two articles where our subprime mortgage problems affected their businesses.
RBS to reveal hit from the big credit squeeze:
When RBS's long-awaited moment of truth arrives on Thursday, most brokers believe that chief executive Sir Fred Goodwin will write off some £500m from the value of loans linked to American mortgages caught in the subprime debacle. Some analysts are much more pessimistic, with the team at Sanford C Bernstein believing that the total could be as much as £1.9bn, despite the group's cautious approach to notortiously dangerous areas such as collateralised debt obligations (CDOs).Will Northern Rock be stuffed by Christmas?:
But lenders - all financial institutions - can hardly profit at such low rates. In the pursuit of higher returns, they dug deep into their algorithms and came up with leverage - multiples of the basic interest rate. The results were the very risky new instruments that blew up in mid-summer. On August 9, to be precise, when a French bank reported problems with one of these new instruments, packaged around US subprime mortgages.
Suddenly, the money markets, already twitchy about subprime, took fright and those in the market found it harder to borrow. All banks ran into some degree of difficulty but most had deep enough pockets to tide them over. Not Northern Rock, though, which might not have had any direct exposure to US subprime but found itself able to borrow only at shorter maturities, and at greater cost. The tap had been turned off.
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