Stocks Fiddle as Subprime Burns

The familiar and sad story of the subprime mortgage business weighed down the stock market Thursday after HSBC Holdings (HBC) reported that it miscalculated the risk of its subprime lending program.

But the subprime mortgage market's woes are not new, and the spillover from bad loans into consumer spending has been and is expected to be small. Indeed, Thursday's reports of strong January retail sales were the perfect foil for the bears' hackneyed argument that the subprime mortgage market could tank the broad economy.

"There is a perception in the market that maybe housing isn't turning as much as we'd hoped, but two weeks from now, it'll probably be the opposite," says Michael Driscoll, director of listed trading at Bear Stearns. "Today, housing is a wet blanket."

Stocks ended well off of their lows for the day but still in the red. The Dow Jones Industrial Average fell 0.2% to close at 12,637.63. The S&P 500 and the Nasdaq Composite slipped only a fraction to close at 1448.31 and 2488.67, respectively.

Given the gravity of losing a family home, or defaulting on debt, one might have thought the market would have fallen farther on HSBC's warning. It may sound cruel, but the subprime segment of the borrowing population just doesn't carry much weight on many trading floors. It is the classic story of Main Street vs. Wall Street, which has found a way to ignore the carnage.