Subprime Slime Oozes in Europe

Investors knew U.S. mortgage issues would arise in other places. With the securitization of debt instruments and the packaging and selling of those instruments world-wide, it was a matter of time before the problem showed up abroad. Because of the anticipation, the market was not entirely surprised about the news coming out of Switzerland early this morning.

The largest European bank revealed its first losses related to subprime mortgage issues. Swiss-bank UBS acknowledged $10 billion in write-downs in a troubled economic landscape. Taking a page out of the Citigroup playbook, UBS sought additional help from cash-rich sources. With help from Middle East oil barons and Singapore lenders, UBS is likely to ride out the storm for the near term. UBS may survive. Where the next shoe drops is anyone’s guess.

It will be interesting, maybe even painful, to see how the rest of this crisis plays out. The cause of the issue, defaulting subprime mortgages, is far from over. The Bush/Paulson Mortgage Freeze Plan may help the long-term situation, but we’re far from knowing for sure. For now, continue to stay wary of financials.