On Sun, 11 Nov 2007 18:41:02 GMT, "Canuck57"
wrote:

Might be 30,000 feet, but very interesting view point. I didn't follow
sub-prime that closely. In fact, I divested almost all my mortgage/bond
instruments some 4-5 years ago now as to me the risk/reward curve was wrong.
3-4% is a joke given "real" inflation rates.


It took me a while to figure out why big name, first tier financial
institutions were interested in sub-prime lending at all. It only
makes sense in terms of creating high yield bonds for the "carry
trade" customers. Unfortunately the big guys not only swallowed some
of their own medicine but also got caught holding inventory as well. I
believe there are some other "bag holders" out there that haven't been
forced to report their losses yet.

But what you say, also means quite a bit of loan/bond "paper" is just that,
a big paper write down. Because if they borrowed Japanese Yen last year at
this time, they owe 20-30% more in USD today above it's face value. Sort of
like a uncovered put option gone bad.


Yes, real bad. It's a classic case of not understanding all of the
risks, and not managing them well. The bond rating agencies like S&P
share some of the blame and there may be some big lawsuits as the
fallout spreads.

It will be interesting to see how the Fed/Banks work this one. But bet it
isn't going to be pretty. Maybe even see $150/barrel yet. Or maybe they
can't afford to let that happen and jack rates fast. Hard to tell. But my
bet is to watch closely what the big Fed related banks are doing. If they
start buying discounted paper the bottom is near. But that may be a ways
off.

Time will tell. The Fed has only limited control at this point and
all of their choices have negative political ramifications sooner or
later.