Is it fair to blame every economic twinge of pain in the United States on the subprime mortgage lending implosion? On Tuesday, Felix Salmon, the prolific econoblogger at Portfolio's Market Movers, pronounced himself aggrieved at the lazy analysts who are interpreting every lurch of the stock market or corporate misstep as subprime fallout.
I honestly wouldn't be surprised at this point to see someone blame the outcome of the Japanese elections on the "subprime meltdown." It's lazy, and it's boring. Can we move on, please?
As a textbook example, one could cite a Bloomberg story published on Wednesday, "Subprime Defaults Blamed for U.S. Earnings Setbacks." (Thanks to Calculated Risk for the link.)
And sure, that headline is a little sloppy. The article is a comprehensive, thoroughly reported look at how the housing bust is pounding a wide spectrum of downstream industries. Railroad companies are complaining that lower shipments of lumber are depressing earnings. Chemical companies say the appetite for specialty materials used in countertops and weather stripping has waned. Caterpillar is blaming a sales dip for its earth moving machinery on the home construction slump. (In related news, GM and Ford also partially blamed sharp double-digit percentage declines in auto sales for July on the housing slowdown.) There's also some mention of insurance sector fallout that is directly tied to subprime, but the meat of the reporting ranges much farther.
One could blame all these trials and tribulations on subprime if one was willing to argue that the pell-mell expansion of subprime mortgage lending activity was itself the cause of the housing bust. But one could also argue that the inevitable collapse of an overheated housing market was what exposed the weaknesses in dodgy subprime loans originally generated by mortgage lenders desperate to grab a piece of the boom. The first cracks in the subprime lending industry did not begin to appear until the housing market was well into its contraction.
There is also, as Bloomberg reporters Daniel Taub and Nick Baker note, a tendency to seize upon the story of the day as a handy excuse for explaining away any current financial problems. It might be more palatable to shareholders for an executive to claim that the subprime meltdown is crushing business, rather than, say, Chinese competition, or management miscues.
But even acknowledging all of the above, it's still a little too soon to start begging reporters and analysts and bloggers to start focusing their attention elsewhere. The credit market anxieties swirling around Wall Street right now are directly tied to the ripple effects of subprime woes. Every hedge fund that blows up and every big merger deal that is delayed because debt is suddenly too costly can be blamed, pretty reasonably, on subprime. Meanwhile, the slowdown in the "real economy" -- the bad news from GM and Ford, a minimal retail sales growth rate -- is more specific to the housing slump (with not insignificant help from high gas prices).
On Tuesday, the U.S. stock market zigged down, while on Wednesday it zigged up. And yes, it may be tiresome to try to interpret every jig and jog as a reflection of how investors feel about the world of subprime lending during any particular minute. But the end of this chapter is not imminent. The housing sector has yet to begin a recovery, and the credit market shakeout may only just be getting started. That's the story of the day. It might be repetitive, but it's not boring.