Wachovia Corp Joins Mortgage Mess Parade

Wachovia, the nation’s fourth-largest bank joins the subprime mortgage mess parade. Wachovia announced  that the complex debt instruments it has in its portfolio declined in value by an estimated $1.1 billion before taxes in October, leading to $600 million loan-loss charge for the current quarter.

Wachovia joins a growing list of banks, including Citigroup, the nations largest, in reporting massive losses stemming from their portfolio of complex debt instructions tied to the subprime mortgage market market.

The large number of non performing loans and foreclosures in this asset class has caused havoc in the mortgage industry and on Wall Street. The really surprising thing, however, is not that so many loans to people who have such a poor ability to repay are turning sour. This was entirely predictable.

The real surprise is that lenders that are supposed to be prudent evaluators of risk became so greedy to earn fees from making any kind of loan that they basically suspended their lending guidelines. For awhile it seemed that anyone who could put an “X” on a loan agreement was able to secure loans of such size that an eventual default was almost assured.

While the US government and lenders are hard at work trying to figure out how to contain the mortgage mess to the housing industry the combination of the subprime mortgage loan disaster, crude oil going to $100 a barrel and beyond, the cost of paying for wars without end, gasoline at $3.00 a gallon heading for $4.00 and beyond, run away inflation in food prices, and a collapsing Dollar, will very likely be too much for any government pronouncement that everything is OK or rescue program to overcome.

You can expect additional massive writedowns from Wachovia and many other lenders over the coming months. Do not be surprised at a few actual major bank failures within the next year or two.

Be prepared for hard times ahead. A nasty recession is probably well on it’s way.

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