Is it possible we’re seeing the light at the end of the tunnel that is the subprime lending crisis? That’s exactly what Morgan Stanley (MS) CEO John Mack suggested today, saying “If you look at the subprime problem in the U.S., you would say were in the eighth inning or maybe the top of the ninth,” of a nine-inning baseball game, Mack said. “Leveraged lending, as we know it, is in the ninth inning.”

I find Mack’s comments to be extremely interesting because of their contrarian nature - most people seem to agree that we’re still early on in the unwinding of the mortgage mess. Whitney Tilson, for example, said almost exactly that just one month ago.

While Mack and Tilson obviously have a better perspective from which to debate their respective stances on the progress of cleaning up this mess, I have my own way: follow the bankruptcies. Because most cases of extreme speculation end up with several participants in the industry going out of business, I took Moody’s (MCO) tiered ranking of subprime mortgage originators (via Tom Brown) and compared it against a great dataset from the Wall Street Journal that chronicles all the subprime mortgage players that have experienced a fall from grace - be it halting new loans, closing down the subprime division, getting consolidated, or declaring bankruptcy. The results are quite striking, and the sheer number of players that have been removed is indicative that we’ve made progress in clearing out the bad lenders.

Note that HSBC and Wells Fargo (WFC), didn’t get a red mark because US subprime lending was discontinued without substantial effects on the institution - in the case of Wells Fargo in particular, subprime loans were less than 2% of mortgages made, and even those are performing quite well - proof that underwriting standards do matter, and not all subprime is created equally bad.

Finally, the infiltration of market phenomenon into the mainstream is normally taken as a sign that a trend is reaching its peak. Thus, this item caught my eye:
“Harry’s Bar of Venice, in an effort to make the American victims of subprime loans happier, has decided to give them a special 20 percent discount on all items of the menu during the short term of their recovery.”

It doesn’t have the sex appeal of Gisele Bundchen demanding to be paid in Euros, but perhaps a sign of the topping out of certain economic trends… and we now interrupt this article to feature the obligatory picture of Gisele:

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