about this CDO/MBS mess(by smokey)

The more controversy that surfaces about this CDO/MBS mess, the lesslikely the lending banks will be as lenient as they are today. If thereis any doubt that new mortgages cannot be sold into the system, theywill exact more rigid standards for these loans.

This maneuverwill diminish the amount of home buyers in the market which will have adeflationary effect on prices, which will put more home owners underwater on their loans, which will result in more defaults, which willput more downward pressure on not only the high risk parts of thesetranches but the low risk as well.

We are experiencing thebiggest real estate asset crash ever, folks. But since the real estatemarket is still a REAL asset market, it collapses very slowly.

Firstthe excessively leveraged debtors default. Then the highly leverageddebtors default. And as prices continue to deflate even those who areliving well within their means begin to think about walking away fromtheir depreciating properties before they collapse completely.

Soeven though our attention is concentrated on the toxic laden intestinesof our financial system which can dispose of liquidity faster than feetcan find the latrine. We cannot forget that the main source ofliquidity is the person in the form of the banks who are, for the firsttime, looking at the list of ingreedients he is forking down his mouth.

Yecchh!