Over the past weekend, the New York Times business columnist Gretchen Morgenson continued her “sky is falling” bit with the regard to the subprime mortgage market (see prior post here). Larry Ribstein, who used to disassemble Morgenson’s columns on a weekly basis before tiring of it, somehow musters the energy to expose Morgenson’s vacuous analysis once again, which saves the rest of us from having to muck through her blather.
Nevertheless, it is rather shocking that a Pulitizer Prize-winning business columnist doesn’t take the time to understand that an equity investment in a company that originates subprime mortgages is very different from an investment in debt that is secured by pools of subprime mortgages (mortage-backed securities or “MBS’s”), which are designed to endure a temporary drop in house prices or rise in default rates. Consequently, while Morgenson wrings her hands over the fact that investing in subprime mortgage originators hasn’t been a good idea for the past year, she can’t explain why this means that the markets in subprime MBS’s are in serious trouble. The reality is that they probably aren’t.
But then again, maybe Morgenson doesn’t even understand the equity markets all that well. According to this NY Post article, Morgenson’s story mischaracterized the Bear Stearns recommendations on one of those nefarious subprime originators:

Bear Stearns is claiming that one of its analysts was done wrong in a scathing New York Times analysis of the collapsing subprime mortgage industry.
Bear analyst Scott Coren was described as having written “an upbeat report” about a collapsing subprime mortgage lender, New Century Financial, a company considered to be just days away from bankruptcy.
The article, written by Pulitzer prize-winning columnist Gretchen Morgenson, chronicled in a Page One article how Wall Street willingly created a burgeoning market for bonds-backed loans that were virtually certain to have trouble making their principal and interest payments. Coren, who upgraded his call on New Century on March 1, appeared to be portrayed in a conflict of interest to rival that of the notorious Internet bubble era.
But, in fact, Coren had made a series of gutsy calls on the subprime mortgage sector – no mean feat at Bear Stearns, a firm that in recent years has earned hundreds of millions of dollars annually from mortgage trading.
He put out a “sell”- called an “underperform” at Bear – when New Century stock was at $38 and maintained it until it slumped to $15.
Even Coren’s upgrade on March 1, when New Century was clearly beginning to collapse, advised investors to “stay on the sideline.”

Better rethink that conspiracy, Gretchen.