As the subprime crisis bites, experts predict that as many as 300 US lenders will go out of business in the next two to three years. This from MarketWatch:

At least 150 banks will fail in the US during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets.

If the current economic slowdown deteriorates into a recession on the scale of those from the 1980s and early 1990’s, the number of failures will be much higher this time around — probably as high as 300 of them, by RBC’s reckoning.

“Late payment rates on subprime US mortgages stayed above 9% even when the cost of borrowing sank to a four-decade low (and stayed there) between 2002 and 2005,” says Adrian Ash in The Daily Reckoning UK.

“Teaser rates of just 1% interest, in other words, left almost one-in-ten subprime borrowers unable to meet their monthly mortgage bills. So the profits assumed by ‘resetting’ those rates to 7% and above two years down the line were never going to show up.

“As in not ever. Any bank day-dreaming otherwise deserves euthanasia, let alone bankruptcy.”

“The so-called ‘first wave’ of the credit crisis hit banks’ trading books,” says William Patalon III in Money Morning. “But the second lightning strike will hit lenders where it hurts the most – right in their lending businesses […] The impact on the economy will be devastating.

“Here’s why. The banking system’s ‘originate-to-distribute’ model changed the rules of the game. No longer did banks make loans that were based on very careful risk-of-loss analyses. Under the new system, banks make loans – such as subprime mortgages – which are then ’securitized’, or packaged together, into debt instruments that the trading operations of banks, investment banks or institutional investors might then purchase, believing it was a way of achieving higher returns.”