Reply #76: Here is what I think is next

[HamdenRice]

From what I've been reading, so far, the crisis is limited to mbs whose collateral is from the sub prime borrower's market.

The problem is that mbs were treated as generic, almost like cash. All that mattered was maturity and yield.

Now as institutions trade mbs, suddenly, banks are asking, "is this Fannie Mae guaranteed? Is this subprime?"

For the system to work they have to be basically all the same. There is no way in hell that some bank trading desk managing overnight liquidity can read the SEC prospectus on each mbs to determine which are good and which are sub-prime.

Some clever information merchant will come up with a list of what not to accept for settlement, and the short term liquidity crisis will probably be at least for now ameliorated.