You Have Been Warned

Is Larry Fink more like Cassandra or Chicken Little?

Fink, chief executive of the mega-fund management company BlackRock, said he thinks big lenders are making the same mistakes with the private equity crowd that they did with subprime mortgage underwriters: That is, fighting for business by lowering their standards to dangerous levels.

"If I was the chairman of the Federal Reserve, I'd be paying more attention to that because, to me, this is going to be tomorrow's problem," Mr Fink said in an interview with the Financial Times. "Standards have deteriorated to levels that we never even dreamed that we would see."

Well. That's saying something. Particularly on a day when Countrywide, the poster child of reckless mortgage lending, said its earnings tumbled 37 percent. Countrywide, which originates about one in five mortgages in the country, said its revenue from subprime mortgages fell by $400 million.

Abundant liquidity is behind both problems, he said. Too much cash to put to work and too few good opportunities. The predictable result is the current state of affairs, which he calls a classic "bubble" -- though not as big or dangerous as the dot-com doozy of the late 1990s.

In any case, Fink urges investors to think twice before jumping at one of the private-equity IPOs that are being pitched up and down the Street.

by Mark Stein