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[Stock Lobster]

Re 1929: "I fear Mr. Kuttner is living in a fantasy world.
Last year was "1929" and the fall of Connecticut's subprimer Mortgage
Lenders Network was the analogous event to the '29 stock-market
crash. We really are looking at something that can only end in
complete systemic meltdown -- that is, the regulation train has left
the station.

What I can't say is what will finally precipitate the total
collapse. The ABCP event came as a total surprise. My guess is
still that the end comes when people realize to their horror that
conforming 30-year-fixed first mortgages are going to throw off big-time
you'll-get-50-cents-on-the-dollar losses as the unthinkable happens
and nominal house prices drop 30-40 percent nationwide even as the
dollar and the Fed's fund rate both head straight down.

That's when the counter-party support to QSPE risk management proves to be
a mirage, and the Congressional implicit guarantee on the $1.4+ trillion
of RMBS paper is acknowledged to be impossible to honor.

I've just been through the Fed figures (see attached) and have discovered,
I can't say to my horror as at this point I'm all horrored out, that since
mid-March foreign central banks haven't bought a single net dollar of
treasury debt, and the whole increase of obligations has been in agencies --
yup, the whole weight of the US balance of payments deficit has been
covered by selling US residential mortgage paper to foreign central banks.
How stupid is that?