Comments on: The Subprime Meltdown: What is the bottom line?

By: Patrick Gannon

Patrick Gannon — Sun, 19 Aug 2007 06:03:33 +0000

Jimmy, thanks for your insights on this. The CDO market is very
complex, and it is no wonder that things got a little carried away.
Just because everyone was doing it didn't make it right... That
being said, with the market hopefully learning from this credit
crunch, I wonder if we will see higher quality CDO offerings that
will not suffer from stretched creditworthiness and over-leverage.
Lending Club is very excited about the value we bring to borrowers
and to lenders - we think that there is a very big opportunity here
that we are helping to bring to the market. Thanks again, Patrick
from Lending Club

By: Patrick Gannon

Patrick Gannon — Sun, 19 Aug 2007 04:01:30 +0000

Scot, thanks for the comment. There are a lot of people that think
the market and the economy were getting overheated. Now that the
market hit the down 10% level (intraday last week), the big
question is: where do we go from here? It is quite likely that
there will be an ongoing period of credit crunch news, and it is
possible that some of the lenders who are facing liquidity crises
will be facing an uncertain future. At Lending Club, we think that
the good news is that most borrowers will not be directly affected
(especially if they avoid looking at their IRA statements this
month!), and we are glad to continue to make loans available to
borrowers who meet our strict credit criteria. We hope to be a
source of liquidity for borrowers, and a place for lenders to make
good returns with reasonable risk. Patrick from Lending Club

By: Jimmy Huen

Jimmy Huen — Sun, 19 Aug 2007 03:06:46 +0000

As a CDO analyst currently with Bank of New York (formerly in a
group under JPMorgan), I am in the middle of all of this mess with
a front row seat to watch how this movie was made, distributed and
bombed. For the last couple of years investors' appetite was
through the roof for these kind of instrument backed by securitized
pool of these mortgage loans both high grade and sub prime. I
analyze these multi million and billion (deals of less than 500MM
was considered below average size-wise) dollar deals on a daily
basis and wonder if investors really know what they are investing
in. Granted, the risks are supposed to be spread thinner by the
entire pool of collateral so if one defaulted, it has minimal
effect on the entire structure. Bear Stearns and other Investment
Banks underwrote these deals like a auto assembly line. You can't
blame them because it is easy money for them. Demand was high and
defaults were relatively minimal. The rating agencies, tempted by
high fees, also approved them with high regularity. I often see
some of these CDO deals that hold lower quality assets squeezing
every little bit of "juice" to pass coverage tests. It doesn't take
a genius to know that one little hiccup will cause the lower
tranches of these borderline deals to trigger a default event. The
current sub-prime woes are just elements of a perfect storm that
will have lasting effect on these investment vehicles. Lending Club
should be in a good position to capitalize on the sub-prime
misfortune. As money move out of those investments, investment
alternatives like Lending Club should benefit from the exodus of
money of some of these high net worth investors. One man's pain is
another man's gain