The Wall Street Journal has an excellent article that explains the interdependency between subprime borrowers and wealthy, high-risk investors:
Three years ago, Colorado truck driver Roger Rodriguez was in the market for a new mortgage loan. With radio and Internet ads trumpeting easy approvals, he picked up the phone.
That call set into motion Mr. Rodriguez’s descent into the subprime mortgage mess. Over the next several months, his adjustable-rate loan passed through many hands. These included a local Denver broker, Livingston, N.J., finance company CIT Group Inc. and a Greenwich, Conn., unit of Royal Bank of Scotland Group PLC. Eventually, a piece of Mr. Rodriguez’s loan landed in mutual funds run by a Tennessee investor named James C. Kelsoe Jr.
Little good has come to any party that touched the loan. Mr. Rodriguez, now 61 years old, has lost both his job and his home. All the middlemen, from the broker to CIT to RBS, have either shuttered their mortgage businesses or are struggling. Mr. Kelsoe, once a star mutual-fund manager, has hit a career low as defaults on subprime mortgages decreased the value of his investments.
The paper trail from Mr. Rodriguez to Mr. Kelsoe illustrates how the mortgage market meltdown scalded millions of homeowners and investors. It also foreshadows how the domino effect stands to continue.