Subprime Mortgage Bubble
As early as the 2003, in an annual report issued by the company, chief executive Prem Watsa raised concerns about securitized products and talks about the subprime mortgage crisis and the United States housing bubble:
"We have been concerned for some time about the risks in asset-backed bonds, particularly bonds that are backed by home equity loans, automobile loans or credit card debt (we own no asset-backed bonds). It seems to us that securitization (or the creation of these asset-backed bonds eliminates the incentive for the originator of the loan to be credit sensitive... With securitization, the dealer (almost) does not care as these loans can be laid off through securitization. Thus, the loss experienced on these loans after securitization will no longer be comparable to that experienced prior to securitization (called a ‘‘moral’’ hazard)... This is not a small problem. There is $1.0 trillion in asset-backed bonds outstanding as of December 31, 2003 in the U.S.... Who is buying these bonds? Insurance companies, money managers and banks – in the main – all reaching for yield given the excellent ratings for these bonds. What happens if we hit an air pocket? Unlike...":
In an interview in the Globe and Mail in 2007, Mr. Watsa said believed that the global credit squeeze is in its "early days," and indicated he believed there may be similarities to the Japanese asset price bubble.
Read more about this topic: Fairfax Financial
Famous quotes containing the words mortgage and/or bubble:
“We are playing with fire when we skip the years of three, four, and five to hurry children into being age six.... Every child has a right to his fifth year of life, his fourth year, his third year. He has a right to live each year with joy and self-fulfillment. No one should ever claim the power to make a child mortgage his today for the sake of tomorrow.”
—James L. Hymes, Jr. (20th century)
“Each swung in danger on its slender twig,
A bubble on a pipestem, growing big.”
—Robert Frost (1874–1963)