S&P sees end to subprime mortgage writedowns

Standard & Poor's said subprime write-downs for large financial institutions are likely past the halfway mark, but they could still hit $285 billion.

MAKING SENSE OF THE STORY FOR CONSUMERS

• S&P's statement gave a boost to financial stocks and helped Wall Street indexes pare losses.
• The purging of bad loans in the subprime market through foreclosure or refinancing ultimately will strengthen everyone's ability to obtain mortgages.
• Fewer foreclosures mean fewer vacant homes, which may make a neighborhood a more desirable place in which to live. That, in turn, could increase the demand for housing.

Bear Stearns Rescue Is `Finger in Dike,' Scholars Say

With Bear Stearns Cos.' rescue, the $200 billion subprime crisis joins a long history of government bailouts to preserve jobs, homes, and savings.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Bear Stearns failing would have reverberated well beyond the investment banking sector. Large investment bankers such as Bear Stearns provide much of the capital that eventually finds its way into the pool of money used to fund mortgage loans.
• Most investment bankers are heavily leveraged. That means they fund investments by borrowing. If they invest well, they can pay off debt and still make a profit. But if no one will lend to them, investment bankers can neither pay debt nor make investments. That combination can cause an institution to fail. Bear Stearns was not the only heavily leveraged investment bank. Many other large Wall Street firms also are dependent on the ability to borrow to survive, so a loss of confidence resulting from the failure of a major player could easily have brought down several others.
• The credit crunch, or consumers' difficulty obtaining mortgage loans, is one of the greatest hindrances to a real estate market rebound. In recent months, even prospective buyers with good credit have had trouble securing a loan. If financial markets stabilize, that could help boost demand for housing.