E-Trade is Hit!

Online trading company E-Trade got slaughtered in trading today. From Bloomberg:

E*Trade Financial Corp. lost more than half its market value after the online brokerage forecast a decline in fourth-quarter earnings and a Citigroup Inc. analyst said the company may go bankrupt.

Why would an online trading company be facing bankruptcy? Any guesses?

Chief Executive Officer Mitchell Caplan's strategy of building E*Trade's bank by tripling loans outstanding backfired as borrowers fell behind on payments and U.S. home prices declined.

That's right... they were betting on the housing market, and they lost big. But is this really surprising? If you make loans to people who can't afford them, are you REALLY surprised when those people can't pay? I'm not.

And the next steps are playing out fairly predictably as well. You've heard of the 'credit crunch' right? Well, that's nothing more than other banks seeing what is happening to E-Trade and saying Fuck That. No more easy loans, no more bad credit.

What does that mean for the economy overall? A quote from another Bloomberg article is telling:

"We are in a danger zone," says Nariman Behravesh, chief economist at Global Insight Inc. and a former Federal Reserve economist. "It would take two shocks to bring the economy to its knees. We got one shock in the form of the credit crunch. Oil could be that second shock."