While high-end home owners are largely insulated from the spike in foreclosures caused by subprime mortgage problems, the meltdown in the risky mortgage market could still affect their bottom line.
Timothy Bitsberger, treasurer at McLean-based lending giant Freddie Mac, warned that many hedge funds could be in danger of substantial loss due to the subprime collapse.
Because hedge funds make risky investments in the hopes of a large payoff, many have large stakes in repackaged risky mortgages.
Economists told The Examiner that hedge funds with large positions in the subprime market are at risk of collapsing, and the drop in consumer confidence caused by the meltdown could lead to slowdowns in that sector.
Some funds have already collapsed under the weight of their subprime investments.
Last week, New York-based financial services firm Bear Stearns said it would provide a $3.2 billion bailout to one of its hedge funds, down 5 percent through April due to the subprime fallout.
A Merrill Lynch analyst warned on Monday that Bear Stearns might have to bailout a second fund.
This could be bad news for wealthy individuals who provide a large percentage of the capital in hedge funds.
“Hedge funds are generally comprised of investors looking to make a temporary, quick gain, said Joseph Cater III, president and chief economist at Annapolis-based Market-Economics. For smaller investors who are looking to make some big returns, they appear to be attractive.”
Kenneth Simonson, chief economist at the Washington-based Associated General Contractors of America, said retail is also feeling a pinch. He pointed to Home Depot’s announcement last week that it is selling its contractor supply business for $10.3 billion as proof of the retail market’s weakness.
Bitsberger sought to ease concerns about the affect of the subprime marketTuesday, telling investors in London that the damage is “severe but contained.” He added the primary owners of the bonds that comprise the subprime universe are “large institutional players who can withstand the loss.”
