subprime market is not just BSC problem, banks will suffer

Subprime is a WS issue -Ordinarily, WS would not shed tears if BSC is in trouble, they would pounce on its weakness. But much of WS is elbow-deep in the sme trouble securities, created by the height of mortgage boom. Now it is back to bite them. Last years, WS churned out around $550 bil so-called CDOs and they are hold some of them in their own balance sheet. -CIBC and Parbas all take a shock from the issues risks -CDOs are illiquid securities. Current accounting rule allow firms to peg CDOs at the price they paid for them. A shotgun sale of these securities will provide a true pricing for these securities. But no one dares to reprice it. -Another risk is that rating agency might downgrade these CDOs, marking down the value of CDOs. -the wild card is institutional investors, pension and hedge funds. If they rush for exist, they will create a downward spiral. -housing market might contribute to the downgrade of CDOs. According to Phoneix, houses enter foreclosures at a rate of more than 50 a day, up 60% than last year. The faster foreclsures rise, the more likely CDOs backed by these secs will be downgraded. Implication of CDOs meltdown -concerns are growing that subprime issue will spill over to junk bonds and leverage loans, draining leverage buyout deals and napping at WS banks profit. http://www.businessweek.com/magazine/content/07_28/b4042037.htm?chan=top+news_top+news+index_top+story