The Losses Keep Coming in Mortgage Securities Crisis; Congress In Denial

May 9, 2007 (LPAC)--In the latest report of the large losses sweeping through the mortgage-backed securities (MBS) market in the crash of the U.S. housing bubble, the Alesco Financial real-estate trust in Philadelphia reported it has lost $65.6 million, 2% of the "value" of its entire portfolio of MBS, in the first quarter 2007. Conservative estimates by investment banks, of these MBS losses, already put them in the tens of billions; one real estate trust manager, quoted by Bloomberg on April 28, forecast hundreds of billions of losses, mainly by hedge funds and funds investing in hedge funds, in the coming year.

The N.Y. Federal Reserve on May 3 gave "fair warning" of a hedge fund crisis like that of 1998, when the LTCM hedge fund failure nearly blew out in the international financial system. May 9 the head of the Euronext stock market, John Thain, made the same warning, that a liquidity crisis "is certainly a bigger risk today than it has been, probably, since the Summer of 1997."

A Moody's Investor Service representative, at a House Financial Services Committee subcommittee hearing on the MBS markets, held on May 8, said Moody's was rating 30% higher "loan-loss expectations" for mortgage-backed securities now, than in 2003.

But the same hearing showed the Congress in complete denial of the systemic character of this financial disintegration. Not a single witness or Member of the subcommittee mentioned the ongoing collapse of the housing-price bubble, or suggested that banks' and financial companies' assets will have to be written off in order to deal with the crisis.