Another now classic article from February 12, 2007: Merrill Loaded for Bear in Mortgage Market That Humiliated HSBC.

“Merrill is determined to capture a dominant share of trading in bonds backed by home loans, the fastest- growing debt market since 1995 and this year’s most troubled. O’Neal’s enthusiasm for mortgages to potentially delinquent borrowers coincides with the highest default rate in more than six years, a record contraction in demand for so-called subprime loans and descending bond prices.
…
Bear Stearns, Deutsche Bank AG, Morgan Stanley and Barclays Plc have bought or agreed to buy subprime lenders in the past six months, betting that a bigger presence in mortgages will produce more revenue from packaging the loans into bonds. Fees from securitizing debts including mortgages, auto loans, aircraft leases and credit-card receivables have almost tripled in the past five years to $5.6 billion.

Merrill is counting on securitization to dispose of risky mortgages and avoid the headaches now plaguing HSBC … HSBC’s troubles stem from its $15.5 billion purchase in 2003 of Household International Inc., then one of the largest U.S. lenders to consumers with poor credit. Beguiled by the high interest rates on subprime loans, HSBC erred by keeping many mortgages on its books instead of selling them to investors. [Ed: erred by not foisting the junk on suckers?]

Lenders provided $640 billion in subprime mortgages last year, an increase of almost fivefold from 2000 … ‘There’s no secret sauce in this business,’ Countrywide’s Mozilo said. ‘It’s a matter of how efficient you are in the securitization process as well as how efficient you are in the origination process.’” [Ed: “efficient,” I love it!]

What a beautiful and timely article that was. (Did the reporters win a prize for it? They should.) Anyone who was paying attention at the time would have profited from it.