Friday Morning: “Disaster” -- Another Subprime Casualty in the O.C.

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Good morning. ‘Disaster,’ ‘horrendous,’ ‘heartbreaking.’

These are the words being used to describe the sudden collapse of Brookstreet Securities in Irvine, which was undone by subprime fallout; 100 people were laid off when the company effectively ran out of money.

The O.C. Register’s Mortgage Insider blog explains the collapse: ‘Brookstreet Securities Corp., an Irvine broker-dealer, has shut its doors, laid off 100 local employees and liquidated its assets because it is unable to meet margin calls on complex securities called collateralized mortgage obligations, the company’s spokeswoman, Julie Mains, told Register reporter John Gittelsohn today.

More: ‘An e-mail sent to employees summed up the situation as a ‘Disaster.’ ‘It’s heartbreaking,’ Mains said.’

From Reuters: ‘Brokerage firm Brookstreet Securities Corp. said it may have to shut down in the wake of a severe liquidity crisis sparked by losses on collateralized mortgage obligations. ‘Disaster, the firm may be forced to close ...,’ the Irvine, California-based company told employees in an e-mail on Wednesday.

Our take: This is part of the ripple effect of the subprime mortgage collapse. First, scores of lenders went out of business because investors stopped buying subprime loans -- the lenders ran out of money to lend. Now the investors who had already purchased subprime mortgage-backed bonds are taking losses. Not pretty.

Photo Credit: Reuters