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Monday, February 18, 2008

Housing/Subprime Roundup — Feb. 18, 2008

Items of interest:

Gretchen Morgenson / NY Times:
Arcane Market Is Next to Face Big Credit Test -- Few Americans have heard of credit default swaps, arcane financial instruments invented by Wall Street about a decade ago. But if the economy keeps slowing, credit default swaps, like subprime mortgages, may become a household term.

Credit default swaps form a large but obscure market that will be put to its first big test as a looming economic downturn strains companies’ finances. Like a homeowner’s policy that insures against a flood or fire, these instruments are intended to cover losses to banks and bondholders when companies fail to pay their debts.

The market for these securities is enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market. [...]


As with other securities that trade privately and by appointment, assigning values to credit default swaps is highly subjective. So some on Wall Street wonder how much of the paper gains generated in these instruments by firms and hedge funds last year will turn out to be illusory when they try to cash them in. [...]

related:
Here comes the big one - Crooked Timber
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Alex Tabarrok / Marginal Revolution:
Was there a Housing Bubble? -- The conventional wisdom is that there was a housing bubble which has now popped. The data, however, tell a different story. Remember, that the evidence for the bubble was that real house prices had increased tremendously since around 1997 leading to prices that were far above any seen in the past one hundred years. [...]

In the shift to the new equilibrium there was some mild overshooting, especially due to the subprime over expansion, but fundamentally there was no housing bubble.
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zero hedge

Calculated Risk

Mish's Global Economic Trend Analysis

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia