Sorry to keep harping about the looming fall-out from mortgage defaults, but the issue is inevitably key to the health of all other asset markets at present. When the foundation is rotten, and world liquidity has been built up on that foundation, all other structures are at risk of major damage. The problem is that mortgage bonds are the world's biggest debt markets (Securities Industry Financial Markets Association). And mortgage bonds have some serious problems at present.
See S&P, Moody's Hide Risk on $200 Billion of Mortgage Bonds for an excellent summary of some of the key issues and players in this mess to date:
“You'll see massive losses from banks, insurance companies and pension managers,” said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York and co-author of a study last month that said S&P, Moody's and Fitch understate the risks of subprime mortgage bonds. “The longer they wait, the worse it's going to be.”
Interesting to note the collusion between various participants in this fiasco. As banker/underwriters are scrambling to try and keep subprime portfolios from being priced on the open market, pretending that these bonds are still worth their inflated book values. This morning, a south Florida newspaper reported that realtors in various parts of the country have been failing to submit recent sales data in hard-hit areas as another effort to prevent real market prices from coming fully into public view.
Comment: the truth is going to get out eventually. This problem is too big and too wide for any group to conceal. The quicker we all come clean and admit the shocking extent of the credit abuse beast this cycle, the quicker we can get on with clean up and recovery.