I work in the Canadian finance industry, so I won't be immediately affected by the US sub-prime lending woes, but I suspect that we as a country will begin to experience similar lending issues in a year or two. My key concern regarding this sub-prime issue is American consumer spending, which is a huge driver of your economy, as well as Canada's. I think that we will see a tightening of lending standards in both the US and Canada, which means less money supply to consumers, which in turn means flat or lower housing prices. I think that a decrease in consumer spending would ultimately (indirectly) affect commodity prices, which wouldn't exactly be a good thing for Canada. I could very likely be mistaken, but I suspect that some of these sub-prime woes are part of the reason for stock market issues this week...there could be some fear that this is just the tip of things to come.
Definitely. MS MER GS etc some of the biggest broker/dealers have rolled many products from sub-prime to prime and sliced and diced them into many products that are leveraged and traded and that make them billions of dollars. Also the flood of foreclosures from sub-primes means market gets flooded with inventory and primers get affected by the psychology and market sentiment. I have been commenting about subprime lenders for the last 2 months (NEW, FMT, etc.) and finally in last 2 weeks things came to a head. now NEW is under investigations and FMT is postponing reporting. It is snowballing already and China is just an excuse to turn attention from the real problem. Notice how financial stocks started dropping on Feb 21, 2007 well before this week's market "correction"? I saw it coming and used this divergence profitably as you can see http://lauristonletter.blogspot.com/