From todays New York Times. The housing bust enters another very ugly phase. The rats are starting to fight, but reach some agreement, probably with the help of a little "liquidity" or in other words printing, from the Fed.
It should be noted that the type of securities that are melting down,CDO's , the sliced and diced mortgage pools, had 370 billion originated last year alone. This compares with a monetary base of 1,000 billion. In other words, if the Fed is forced to rescue this market from failure, the potential increase in monetary base is 37 percent, even before this money enters the fractional reserve multiplier. Welcome to the Second Reich redux. hyperinflation or a greater depression or some combination. I hate when Hyak is right. Look at the horror he had to live through, even though he saw it coming. But the headlines keep on coming just as Hyak and the Austrians predicted a hundred years ago.
http://www.nytimes.com/2007/06/23/business/23bond.html?_r=1&th&emc=th&oref=slogin
Note that most of the money at risk is from banks and brokers, who have access to Fed credit creation...
"So, in August, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund - the second fund that eventually had huge losses - was started with $600 million in investments, mostly from wealthy individual clients of Bear Stearns, and at least $6 billion in money borrowed from banks and brokerage firms"
Now that the market for these securites is disappearing, the money for mortgages may start drying up, unless the Fed gets in the mortgage biz directly. I think they will. It is after all a fiat money system. All will be swept under the rug. Unlike the depression with 5 cent apples, this next economic crisis will be $50 apples, coming to a cart near you.
Phil