Wake Up and Smell the Foreclosure Crisis

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Photo: Karen Bleir/AFP/Getty Images

The past few weeks of business news have been dominated by the mess and mass fraud in the housing market — banks have used faulty information, false documents, and hairstylists posing as experts to kick people out of their homes, people are calling up their lawyers, and the government is worried that they will be on the hook for billions of dollars of losses.

Despite all the signs of an impending crisis — Bank of America suspended all foreclosures and clearly faces a world of trouble — investors didn't immediately freak out. Like all good looming economic disasters, it faded into the background noise of the market.

Then something clicked and bank stocks plunged today, while the rest of the stock market stayed flat. (The price of bank credit-default swaps, insurance against them going over, has also skyrocketed in recent days.) "All this does is increase uncertainty and make me question my estimates of returns," said one fund manager and investor in mortgage securities.

Foreclosure Crisis Slams Into Banks [WSJ]