Where did the housing crisis start?

Well, “subprime” is a wonderful word, and it was a little bit alluring to people. If you had said “not credit worthy loans” as opposed to “subprime”, people might have been a little bit more careful. But the word “subprime” kind of rolled off your tongue, and it didn’t sound offensive. So people bought a lot of these subprime loans not recognizing that a lot of the people who were taking out these loans probably couldn’t honor their mortgage commitments. The effect on our business has been twofold. One, a lot of people who bought subprime loans were also people who bought LBO loans. And as subprime loans went down in value and began to default, many of them didn’t have the money any longer to buy LBO loans. In addition they began to worry that if subprime had a problem, maybe LBOs had a problem. So many of them pulled back, and that’s had a big effect on our . . . on our industry. A second effect has been that the whole securitization of private equity and LBO loans has been a global business. And now loans are taken down by people all over the world. Well as the subprime market in the United States declined and had a lot of problems, people around the world began to get nervous as well. And even though they weren’t directly affected by subprime, they began to be worried that they might be affected by things comparable to that in their own country. So they began to pull back in buying LBO loans as well.

Recorded on: 9/13/07