They could hardly believe their ears.

When Mercury Finance and Jayhawk Acceptance revealed themselves to be in deep trouble, the many stock analysts who had cheered on the subprime auto lenders were suddenly reduced to bewildered children.

"It's like when they told you Santa Claus wasn't real," said one chagrined analyst.

And so it was that a bubble burst on Wall Street. As the troubles at Mercury and Jayhawk quickly depressed the entire subprime auto sector, scores of analysts, investors, and others suddenly felt like big-time losers.

But the debacle, like so many others, also produced a solid array of winners, ranging from short-sellers to class-action lawyers. On page 22, American Banker offers a detailed accounting of the winners and losers, in graphic form.

Ultimately, the bursting of the bubble is about more than Mercury and Jayhawk. And it is about more than the future of subprime lending.

What the episode really speaks to is the zeitgeist of today's stock market.

"People's perception of risk now is colored by a stock market that never looks back," said James Grant, editor of Grant's Interest Rate Observer.

As he and others see it, subprime lending enthusiasts had neglected one of the most basic tenets of investing: If something looks too good to be true, it is.

For months, Mercury and Jayhawk were touted as the cream of a brand new crop of superstocks. The high-yielding dynamos were capable of leaping several points in a single day, doubling profits in a quarter, and tripling lending volume in a year.

Or so it seemed.

In late January, Lake Forest, Ill.-based Mercury shocked the market by reporting that its earnings had been inflated for four years by unauthorized accounting entries-and that its controller had vanished. Soon after, Dallas-based Jayhawk declared bankruptcy, for reasons of its own.

Strikingly, some very bright Wall Streeters had been heaping praise on the auto lenders till near the end. Evidently, they had forgotten to look under the hood.

"I'm not going to apologize for the fraud" at Mercury, said John Hefferen, a Natwest Securities analyst who had been bullish on the company. "But analysts and investors all should have been more sensitive to the difficulties that Mercury was having."

For now, there's not much to do but sift through the debris, examine the plights of the losers and marvel at the good fortune of the winners.

That review, in turn, may lead to greater restraint in both investing and lending.

"Lenders will soon demand a higher rate to bear the risk of default," said Mr. Grant. "No longer will ordinary investment grade companies be able to borrow as if they could write a check on the Treasury."

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