New Century Financial Corp. (OTC: NEWC) filed for Chapter 11 bankruptcy protection today, and is eliminating half its workforce (3,200 jobs). The shares traded down to $0.90 today, after starting the year above $30 per share.

New Century is one of the largest victims of the down-turn in the subprime lending industry, which has collapsed with the housing slowdown. Subprime lenders make high-interest loans to borrowers with bad credit or no credit, and the industry soared during the booming real estate market. But with the real estate market softening, and default rates climbing, the idea of lending money to people who can't afford to pay it back doesn't look quite as smart as it once did.

Earlier today, I wrote about concerns that the subprime crisis could spill over into other sectors. It remains to be seen how effectively this crisis will be contained, but if the concerns of some analysts come to fruition, retailers like Wal-Mart could find themselves in a lot of trouble.

However, I have some ideas for companies that could benefit from tough time for lower-income folks. These may seem like predatory investments but, if it hurts your conscience, you can always donate a portion of your proceeds to charity. If working people are having a hard time paying the bills, they may turn to payday lenders. Although the industry faces increasing regulatory scrutiny, here are some stocks in the industry:

Cash America International Inc. (NYSE: CSH)

EZCorp, Inc. (NASDAQ: EZPW)

Advance America, Cash Advance Centers (NYSE: AEA)

MAJOR PAPERS:

• The Wall Street Journal reported that New Century Financial Corporation (OTC: NEWC) is expected to announce as soon as today that it is filing for bankruptcy projection.
• The Wall Street Journal reported that EMI Group plc (OTC: EMIPY) will hold a special media event on Monday with Apple Inc's (NASDAQ: AAPL) CEO Steve Jobs as its special guest, fueling speculation that EMI will sell music without anti-piracy software.
• The Financial Times reported that the U.S. and South Korea said they had agreed on the terms of a landmark free trade deal which will boost trade by as much as $20B a year.
• The Financial Times reported that French stock market regulators are looking into unusual share price movements in France Telecom ADS (NYSE: FTE) and a few other CAC40 stocks, as there is concern that unknown forces could be profiting from false rumors and speculation in the stocks.

OTHER PAPERS:

• The U.K. Times has learned that GlaxoSmithKline plc ADR (NYSE: GSK) is in talks with the World Health Organization, or WHO, over a proposal for a subsidized mass avian flu vaccine for developing countries.

WEBSITES:

• According to an internal memo obtained by SUSE-IRC.org, Microsoft Corporation (NASDAQ: MSFT) is in talks to acquire Novell Inc (NASDAQ: NOVL).

New Century Financial Corporation (OTC: NEWC) is a stock to stay away from. However, looking into what is going on at this mortgage provider can teach investors how the industry works and possibly how to play an industry upturn when it occurs.

New Century is a subprime mortgage loan originator, meaning New Century underwrites mortgages that are provided to home buyers.

In 2006, New Century underwrote $60 billion in mortgages, a large number. To buy these mortgages and package them to be securitized, New Century needs large lines of credits from big banks. However, last week, their bankers withdrew their lines of credit, so they cannot underwrite any new mortgages. Which is fine as long as they can profitable sell the mortgages they still have to place.

However, there is one more catch. These subprime mortgages all have contracts which forces New Century to take back mortgages that go into early default. With short-term interest rates having shot up the past few years, more mortgages are going into early default and are being pushed back to New Century, creating a problem for this company.

New Century's creditors currently want $8.4 billion in cash back for loans provided due in part because of early prepayment defaults. This $8.4 billion loan is collateralized by $9.0 billion in mortgages. So there is serious collateral. However, traders are using the current tight liquidity conditions and concerns about higher early prepayment defaults to place New Century in a difficult liquidity situation.

But, at the end of day, there are real assets collateralizing these bank loans. The questions are how bad the early prepayment default rates are, how much and how quickly do the banks want their loans back and how much pressure traders will place on mortgage pricing in the market.

In the collapse of the subprime credit card and the subprime auto businesses, companies stayed afloat by large investors willing to put up a lot of cash to recapitalize the company. When this happened, investors who purchased the stocks of these companies post-recap made a lot of money.

Wait for these companies to complete large equity recaps as a sign to start looking at these stocks. Then there might be some money to be made without taking a lot of risk.