The fog of battle [1] of "Slightly-Less-White Thursday" [2] has now dispersed a bit. Numerous commentators declared that the weakness in subprime, made manifest by the New Century and HSBC announcements, would not spread beyond that narrow category. The remainder of the week seems to have proved the optimists right.
What caught my attention during this exercise, though, was this Street article [3] that put forth a theory as how the firewall around subprime is constructed. As quoted by the author, senior economist at Deutsche Bank Torsten Slok implies that subprime’s customers rest mostly in the bottom 20 percent of Americans by income.[4] He then notes that this bottom quintile’s share of the American pie has shrunk roughly 17% from a very low base in 1970, and in 2005 stood at only 3.4% of total income.
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