Bond Manager Says Don't Bail Out Subprime

He also believes the next shoe is likely to drop next month, when distressed hedge funds will be forced to sell securities in order to raise cash to meet redemptions at the Sept. 30 quarter-end. How much forced selling there is, and what effect that will have overall on the market, remains to be seen.

But here is where Atteberry parts company from Gross.

Nationwide house price deflation? Atteberry cites Wall Street research that more than half of mortgages to subprime and Alt-A borrowers -- or those with less than stellar credit and those who have good credit but are merely overstretched -- are concentrated in just a few real estate hotspots. They're the obvious places: the areas around San Francisco Bay, Los Angeles and San Diego, Sacramento, Seattle, Denver, Las Vegas, Phoenix, Houston, Chicago, Atlanta, Miami, Fort Lauderdale, Washington D.C., New York City and Long Island.

More than half.

Those same areas are also the ones that saw prices double, or even triple, during the housing bubble. Atteberry believes that prices in these areas might now fall by 30% while remaining broadly flat everywhere else.

Anyone who has looked at real estate prices in San Francisco or Manhattan recently might conclude that they could fall 30% without necessarily sparking a national catastrophe.

"Bill Gross is being melodramatic," Atteberry says. "Come on, let's, be honest -- subprime in, say, Omaha, Neb., is probably pretty small."