Mortgage Crisis Threatens the New Rich

Everybody can't manage a hedge fund, but the road to wealth has other entrance ramps. A popular one, in recent years, was selling "borrow now, pay later" mortgages. But this New York Times story suggests the party's over:

Just as the technology boom of the late 1990s turned twenty-something programmers into dot-com billionaires, and leveraged buyouts a decade earlier turned Wall Street bankers into Masters of the Universe, the explosive growth in subprime lending turned mortgage bankers and brokers into multimillionaires seemingly overnight.

Now an escalating crisis in the market, which seemed to reach a new crescendo late last week, is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up, but the pain is also being felt widely throughout the business world.

Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure. Many investors are also likely to suffer: Wall Street firms made billions in fees, commissions and trading revenue from packaging and selling subprime mortgages to them as bonds.

Did some of those bonds end up in hedge funds? If so, we may have to knock a few hedge fund managers off the list of Ultra High Net Worth Individuals, as well as some subprime mortgage sellers.