Sub-prime turmoil an ‘exit point’

NEW YORK – Some people might wonder if the angst over problems in the sub-prime mortgage market is overblown, but that hasn’t stopped some investors from using it as a reason to pare their stock portfolios.

Wall Street shuddered as mortgage lenders admitted that borrowers with shaky credit were delinquent – put another way, defaulting – at an alarming rate. The fears were that sub-prime mortgage loans, those made to people with poor credit ratings, were just the start, and that borrowers with stronger credit ratings would also have problems making their payments.

Major U.S. investment banks this past week were quick to assuage market fears by declaring troubled loans were contained to just the sub-prime market. But that wasn’t enough for some investors faced with an already slowing U.S. economy and a depressed housing market.

“It’s a major exit point,” said Matthew Smith, president and chief investment officer with New York-based money management firm Smith Affiliated Capital.

Not helping the situation was Alan Greenspan.

The former Federal Reserve chairman, who last month fed the global stock sell-off with comments about a possible recession in the United States, predicted the sub-prime shakeout will worsen. He said sub-prime mortgage defaults would spread to other parts of the economy, especially if home prices decline.