Fortune, one of my most favorite magazines, has dedicated their latest issue to the topic of risk. One of the cool features of this particular issue is their nine-page section called “Wall Street Voices – Crisis Council,” which are the opinions of some of the bigwigs on Wall Street (and Omaha, NE) regarding the subprime mess.
The one opinion that I particularly enjoyed was that of Ben Stein. I love the opening to his piece:
No one is too stupid to make money in the stock market. But there are many who are too smart to make money.
I love it! Here’s Ben’s thoughts on the subprime market:
For example, right now we are stewing over what everyone calls “the subprime mess” and going crazy, mourning all day and into the night–falling over ourselves to get all of the misery right, to paraphrase Evita. I’m writing this on Aug. 13, 2007, and in the past four or five weeks, the markets of the U.S. have lost some 7% of their value, or about $1 trillion.
But read on: The subprime mortgage world is about 15% of all mortgages, or $1.5 trillion worth, very roughly. About 10%–approximately $150 billion–is in arrears. Of that, something like half is in default and will likely be seized in foreclosure and sold. That comes to about $75 billion. Roughly half to two-thirds of that will be realized on liquidation, leaving a loss of maybe $37 billion. Not chump change by any means–but one-thirtieth, more or less, of what has been knocked off the stock market.
The piece then goes on to compare and contrast stupid investors with “smart” investors. It’s a must read for anyone who wants a bit of sanity added to the mixture. The reest of the opinions are interesting too but Ben’s was my favorite. Read them when you get a chance and then come back here and tell us your thoughts.