Another really good book (when it comes to financial market debacles) is Roger Lowenstein’s, “When Genius Failed” (subbed “The Rise and Fall of Long-Term Capital Management”).
There are some significant parallels between LTCM’s 1998 meltdown and the coming MBS CDO/CDS meltdown. As of late, I am reminded of a couple of great expressions. One from Las Vegas that goes: “There’s a sucker in every game and, if you can’t find him at the table, it’s probably you”, and the Wall Street adage, “Never panic. But if you do panic, panic first”.
Bear Stearns is doing their best to “take one for the team” in trying to keep the damage localized but, given the size of the MBS CDO/CDS market, it looks increasingly beyond their ability to control. If/when that happens, it will be a bloodbath, as investors scramble for the exits and dump these securities at fire sale prices.
Interestingly, this same phenomenom will probably occur in the housing market at some point if the number of REOs and price-slashed builder properties overwhelms a local market’s ability to absorb underpriced excess inventory.
You can spell “tranche” either way. I have viewed numerous prospecti using both spellings.
