Bernanke Was Wrong: Subprime Contagion Is Spreading

[...]
he $2 trillion market for mortgages not backed by government- sponsored agencies is at a standstill. That's just the beginning. Other types of mortgages are suffering. So are firms and banks that package the debt for investors. The ripples were felt in Europe and Asia, where central banks offered cash to banks amid a credit crunch. And some corporations, from countertop makers to railroads, are blaming the mortgage meltdown and housing slump for earnings that fell short of analysts' estimates.

Even a mobile-phone company, Dallas-based MetroPCS Communications Inc., says it's feeling the pinch from customers facing foreclosure. And experts such as William Ford, former president of the Federal Reserve Bank of Atlanta, say the chance of a recession is growing.

``Housing created a lot of ancillary economic activity and jobs, and now we are in the reverse process,'' says Paul Kasriel, chief economist at Northern Trust Corp. in Chicago and a former Fed economist.

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