Felix Salmon steals my thunder

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 America. So the line “we are all subprime now” is just wrong. But the there is plenty coming and it has a different profile to what has been.

John