Word: spreading
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There are four reasons why investors everywhere should fear the ongoing fallout from the bust in the U.S. housing market. First, U.S. housing-credit problems have spread to other sectors. Not only have several hedge funds suffered or failed as a result of their exposure to U.S. mortgage products, but some banks and insurance companies as far afield as Australia, Germany and Taiwan have also run up large losses. And they are likely just the beginning, with major firms like Goldman Sachs and Bear Stearns announcing in recent days that some of their own investments have been badly hit. Second...
...early August, American Home Mortgage, a mortgage lender with little subprime exposure, declared bankruptcy, stoking speculation that troubles are bound to spread to securities backed by higher-quality mortgages. It didn't help when lenders Countrywide and Washington Mutual subsequently issued dire warnings about losing liquidity because so few people want to buy mortgages on the secondary market right now. "One of the most interesting things is, we don't know who's going to suffer," says Karl Case, a housing economist at Wellesley College. "Obviously, the people who get foreclosed against suffer. That goes without saying. But who bears...
...generations, U.S. house price appreciation largely tracked inflation. But around 1995, home prices began rising at an unprecedented pace. The boom created wealth throughout the economy, but also created risks that spread far beyond the housing market. Here...
...travel scenario that has become all too familiar for Marion Blakey, administrator of the Federal Aviation Administration (FAA). A severe thunderstorm hits a hub airport like Dallas-Fort Worth, grounding all of the planes there for two hours. Soon those delays spread to airports nationwide, and flights that weren't even bound for Dallas could be canceled. By that point, tens of thousands of passengers might be affected and millions in revenue lost by the airlines. And when the next storm hits, it will happen all over again...
...literally the world over, and it's no surprise why: in an era of low inflation, low interest rates and strong economic growth, products tied to subprime mortgages offered higher returns than many other interest-bearing investments. For a good while, it seemed like easy money, and these investments spread throughout the global economy...