Housing's Latest Impact

Even Carlyle Capital, which held "prime" mortgages, is squeezed.

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Today's Wall Street Journal follows up on two of the big questions relating to the ongoing transfer of trouble in residential construction to the rest of the economy.

First, Carlyle Capital's troubles (subscription required) became clearer over the weekend as the ailing fund tries to deal with its creditors.

It's especially worrisome because the fund held highly rated assets backed by Fannie Mae and Freddie Mac, but the other key takeaway is just how a credit crunch squeezes companies that are highly leveraged. From the Journal: "Like so many other hedge-fund blowups, Carlyle's troubles have come from borrowing too much money. It managed only $670 million in investor funds but boosted its portfolio of bonds to $21.7 billion—meaning it was about 32 times leveraged."

That is a lot, though not unheard of given the (supposedly) safe nature of those securities. Look for my upcoming Q&A with Keefe, Bruyette & Woods analyst Bose George, who talks about why that sort of leverage is causing problems and why those government-backed securities are looking far less sterling.