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Not another subprime post?!

We've devoted a fair amount of coverage to the ongoing fallout in the subprime mortgage and CDO markets in recent weeks.

For those of you who just can't get enough of this financial car crash (or for those who would simply like to learn more), we offer the following subprime roundup. It's the latest take on what's happening in subprime, with a view to the possible knock-on effects in the debt market.

We'll also take a look back to April, when people like Scott Simon of Pimco were offering their view on why they were staying conservative with their asset-backed bond investments.

Plus, you'll see an interesting Bloomberg video panel in which Simon and others debate the extent of last spring's subprime problems.


First off, here's a recent take on what lies ahead for the subprime and debt markets, courtesy of John Mauldin and friends. The following is an excerpt from, "$250 Billion in Subprime Losses?".

It is hard to know where to start when trying to analyze the current problems in the subprime mortgage markets, there are just so many points that beg to be made. So, not necessarily in order of importance, let's look at a few items.

First, as Dennis Gartman so frequently states, there is never just one cockroach. If you see one, you know there are more in the wall. Bear Stearns is just the first. They may be the canary in the coal mine which warns us of more problems to come.

Will the problem in the subprime market spread to other areas of the debt market? The answer depends on what you mean by spread.

Read on for Mauldin's assessment of the problems in the subprime market and how the ongoing turmoil will affect the appetite for risk going forward. See also, Doug Noland's latest Credit Bubble Bulletin for a discussion on why CDOs are "the tip of a derivatives iceberg".

And now we go back in time to April 2007 when Scott Simon was asked by Bloomberg TV to sum up his views on the housing market, and his firm's (Pimco's) strategy on investing in asset-backed bonds. His answer: we stay conservative.

You can bet that Simon's views were shared by Pimco's head honcho, Bill Gross, who recently opined that Moody's and Standard & Poor's ratings services were fooled into labeling these Residential Mortgage-Backed Securities (RMBS) and CDOs as investment grade instruments.

Well prudence and rating agency standards change with the times, I suppose. What was chaste and AAA years ago may no longer be the case today. Our prim remembrance of Gidget going to Hawaii and hanging out with the beach boys seems to have been replaced in this case with an image of Heidi Fleiss setting up a floating brothel in Beverly Hills. AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp stamp.” Many of these good looking girls are not high-class assets worth 100 cents on the dollar.

And if you're interested to see how everyone felt about all these issues back in April, please see this subprime market panel video moderated by Bloomberg's Brian Sullivan. Note the informal poll taken on the spread of subprime problems in the opening minutes of this group discussion.

Well, I think we're up to date. Hope this post has offered some insight into these rather complex issues.

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