I think the sub-prime debacle is indicative of larger problems as far as excess liquidity goes. And I think the largest risk out there right now is a credit crunch brought on by suddenly risk averse investors.
There is supposedly a lawsuit ready to be filed tomorrow against BSAM (Bear Stearns Asset Management) for the losses sustained in the two sub-prime funds they managed. It certainly won’t end there, and more bad news is sure to come in this market, as well as MBS products supporting loans in the Alt-A market.
While there is definitely a focus on the housing market bubble here at Piggington’s, it is really a by-product of excess liquidity: cheap money that was easily available and pumped into an available asset class that was removed from the dot.com bust.
The wild thing is this: No one out there really has any idea how truly deep the risk runs. The derivatives market is nearly opaque from an oversight and valuation standpoint and, until the real bleeding begins, it’s anybody’s guess as to how bad this all can really get.
