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The article tries to explain the factors which have led to the subprime crisis. It concludes that the subprime crisis is far from over. With continued US house price deflation, a large portion of adjustable rate mortgages stepping-up in 2008, and a continued increase in delinquency rates, it will take time for the losses in the 2006/7 vintage subprime MBS to appear and for these losses to work through the system.
The fact that subprime MBS have been sold internationally to a wide range of investor types means that the losses will be spread globally and will be felt beyond the banking sector. All that is certain about the future is that there will be more financial pain to bear for the owners of subprime MBS investments and for the many borrowers who will see their homes foreclosed.
By Dominic O'Kane