Student Protests Could Signal a Turning Point for Subprime; Tough Times: This New York University Student Could Find It Hard to Get Finance in Future Thanks to the American Home Loans Crisis

Article excerpt

Byline: CHRIS BLACKHURST

IN nature, a butterfly beats its wings in Brazil and a hurricane resultsin Texas.

Something similar is occurring in finance.

People in Florida and other parts of the United States renege on their homeloans and the ramifications roll on.

Latest to feel the cold wind of contagion are thousands of American students.

In the US, student loans are provided by the federal authorities, according tomeans testing. Many students then choose to top up their loans by borrowingfrom state lenders.

These latter student loan and other municipal funding programmes are packagedtogether and sold to investors as low-risk securities via auctions hosted bythe major banks Citigroup,

Goldman Sachs and JPMorgan. Any unsold bundles are usually taken up by thebanks.

But in the past fortnight, this "auction rate securities" market has collapsed.

Investors aren't buying and the banks aren't prepared to mop up the excess.

Student lenders are frantically trying to find other sources of cheap financebut without much success. …