Can someone paraphrase what this event means to MBS/CDO/CMO etc., markets? Can some hedge funds be expected to melt down? Any impact on non-mortgage debt markets? can it unwind treasuries? push $ over the edge? Stock market seems not to be noticing any of this turmoil.
As I understand it, ABX is just an index of the securities you’ve mentioned. So it is reflecting their loss of value, not driving it.
Regarding hedge funds, thats a catch-all phrase for a class of funds that are open to accredited investors only and not significantly regulated. They can follow any number of investment strategies and do not necessarily have to be exposed to REI related risks. In fact, as has been mentioned elsewhere, some hedge funds have been shorting the MBS market and stand to make a killing.
But, as we saw with the BearStearns fiasco, others are highly leveraged (another common hedge fund trick) in the MBS market and stand to be totally wiped out.
Regarding treasuries, the dollar and stock market, who can say. I would think treasuries would become more popular (stable investment), the dollar will continue to tank and the stock market keep going up.
