Delete comment from: Captain Capitalism
One big difference between mortgage defaults and corporate defaults is that salaries are sticky but profits are not. For the average homeowner, a recession means 5% chance on losing your job, but 0% risk in having your salary reduced, thus 5% default rate on mortgages (because people hold on to their houses when they can't "break even" selling them, as long as they can still make mortgage payments). For a company, a recession usually means less profit or a loss. This translates into less or no dividends for companies financed with stock. For companies financed with debt, this means perhaps not being able to make their interest payments.
So it is somewhat reassuring that the bulk of bank dept is in housing, since this makes a government bailout less likely.
May 8, 2007, 3:17:00 AM
Posted to The Banks Will Pay