Following up on this morning's post on the topic, we see that Barry Ritholtz has a great item on the potential unwinding of subprime-related debt. The entire post is very much worth reading, but here's the excerpt Barry pulls from a Bloomberg story on potential problems in the world of CDOs:
"Merrill Lynch & Co.'s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street.
A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.
Because there is little trading in the securities, prices may not reflect the highest rate of mortgage delinquencies in 13 years. An auction that confirms concerns that CDOs are overvalued may spark a chain reaction of writedowns that causes billions of dollars in losses for everyone from hedge funds to pension funds to foreign banks. Bear Stearns, the second-biggest mortgage bond underwriter, also is the biggest broker to hedge funds."
Mark Pittman, "Bear Stearns Fund Collapse Sends Shock Through CDOs (Update2)," Bloomberg, June 21, 2007
Chris Isidore, "Hedge fund woes could hit Main Street: Upheaval in credit markets could hit consumer, business borrowing--and slow the economy; risk premiums already rising," CNNMoney.com, June 21, 2007