Tracking subprime fallout

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There are numerous angles to pursue in the subprime story today, so we will throw a bunch at you at once:

CNBC reports investors are relieved today that the ‘head of market regulation at the SEC said two hedge funds operated by Bear Stearns will ‘be able to unwind in an orderly fashion.’ ‘ (Note: one measure of the seriousness of this problem is how quickly the SEC has moved to calm the markets.)

More: Reuters via CNBC: ‘U.S. home sales and prices will fall further in 2007 than earlier expected, the National Assn. of Realtors said.... The NAR trimmed its sales forecast for the fifth straight month and also widened its predicted drop in existing home values.’

Lastly, a confusing quote caught our eye: In explaining its decision to consider slashing ratings on mortgage-backed bonds, Susan Barnes of Standard & Poor’s told investors, ‘The level of losses continues to exceed historical precedents and our expectations.’ Now let’s parse that for just a minute. Exactly what ‘historical precedents’ is she talking about? The last time that banks gave $700,000 loans to strawberry pickers? The last time twenty-something investors bought multiple houses with no money down? The last time ‘liar loans’ swept the nation?

We would argue there is no historical precedent for the credit bubble that inflated housing prices up until 2006. That doesn’t mean it will end badly, it just means we haven’t been here before.

Thoughts? Comments?
Photo Credit: Reuters