GMX presents continuing coverage of the mortgage disaster
GMX is pleased to present the third of an undetermined number of posts tonight and tomorrow about the ongoing collapse of the mortgage-backed security market and the wider mortgage-lending process as a whole.
For this installment, I bring you this post from Mortgage News Daily blog.
Here's the headline:
"Special Report on MBS "Black Wednesday:" Among The Worst Day Of Losses.... Ever...."
Sound bad? Keep reading.The article is techincal--but it is worth reading (twice) if you want to understand the shockwave that is about to smash into the S&P.
Damage Report 5/27/09
The dust is finally settling and ashes finally floating away, at least for today. We are left with one of the most grotesque images to come out of the MBS marketplace in years: the visual representation of the deservedly named "Black Wednesday."
(All graphics reproduced from their blog)
[. . .]
But unlike days past where MBS played the tortoise to Tsy's hare and executed mimetic movements on a smaller scale, today was tsy's day to answer to MBS. To say MBS were center stage today would be putting it mildly. First of all, we need to remember that for years now, total outstanding MBS has far surpassed total outstanding tsy debt. So when something big happens in the MBS market, it can absolutely send shockwaves throughout the entire fixed income sector. We'll elaborate more later in this post and tomorrow, but today was the story of an MBS snowball that consumed everything in its path, including tsy's, until it reached such a momentum that only the bottom of the mountain was a sufficient backstop. Thinking of the "mountain" as literally ALL the gains we've had since the Fed started buying, you can see this is a not-unreasonable metaphor given the day over day chart:
[. . .]
From a technical perspective, this was the trigger that coincided with all hell breaking loose today, and unleashing the previously discussed snowball..."
Here's the rest of the blog... it continues at length but I want to make sure they get ad dollars for their fine work.
When the bond market fails to work normally, it must be propped up. How is it propped? Simple, you pull the rug out from under equities and cause the suddenly scared investors to have to seek safety and buy the unwanted bonds.