Kass: Subprime's Siren Call

Many, like Cramer, Larry Kudlow and others, readily dismiss the potential spending consequences of substantially less capacity in the subprime mortgage-lending market and the emerging trend by mainstream originators and lenders to reduce lending in the primary mortgage market and for refinancing cashouts.

Indeed, Jim takes the subprime issue one step further, noting that the mortgage house of pain will have a salutary market and economic result, as it will hasten the Federal Reserve's path toward monetary ease. Shockingly (at least to me), many others can't comprehend the link between mortgage availability and consumer spending, claiming that the correlation between the two variables is unclear.

I have not touched on the outlook for considerably higher credit losses at the financial intermediaries that address the housing market, which I will reserve for a future time. However, I will underscore the perfunctory conference calls and the generally disingenuous role of Wall Street rating agencies, which continue to hide the damage for owners of collateralized product paper as it relates to the collapse of the subprime market. It seems that at the end of every cycle's excesses, the investment community rationalizes the indefensible, owing to the enormous profitability of the products that are being peddled. The higher a market surges, the easier the product is to sell, but the less straightforward the pitch becomes.