A Subprime Checklist

This column was originally published on RealMoney on March 6 at 9:21 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

No doubt inadvertently, The Wall Street Journal has given us a fabulous checklist this morning to use when trying to isolate the subprime survivors from the catastrophes. Buried in the obituary for New Century(NEW Quote) was this paragraph:

The lender now is plagued with a surge of bad loans, costly obligations to buy back bad loans already sold to investment banks and inadequate reserves. It also faces regulatory probes and shareholder allegations that its officers and directors sold shares at inflated prices. The company has said it is cooperating in the investigations.

So, if we are looking for a bottom in one of these -- say IndyMac(NDE Quote), because that one's the most adamant that it shouldn't be lumped into the parade of horribles -- we need to see:

1. No surge of bad loans
2. No costly obligations to buy back loans
3. Adequate reserves
4. No regulatory probes
5. No massive insider selling before the decline

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