Felix has the response to my "is it fraud" post. Read it.
There was plenty of fraud - unknowable amounts. And there is an awful big pig in the python.
But there is something coming after the fraud - which is plain vanilla losses.
Now here is something that I was hoping to tease out as part of the Fannie Mae story - which is what I am working to. Its what the mortgage data says:
·If the pool of mortgages is really bad it is getting better.
· The worse it is the faster it is getting better.
The deals in the ABX – which are truly awful – are improving at a rapid rate. This is indicative of a pig in the python. The loss rate for those deals is awful but the direction is good.
· If the pool of mortgages is fairly good it is getting worse.
· The better it is the faster it is getting worse.
The loss rate might not be very bad (yet?) – but the direction is horrible.
It is not like "we are all subprime now" – just that ordinary credit is getting worse – which means what was a fraud problem is morphing into an economic problem.
There are non-prime pools with 85% defaults. There is no way that is going to morph across