“In the past month, the market has been behaving in ways even seasoned players have been at a loss to explain,” several reporters write in The Wall Street Journal. And this is precisely the point. Hundreds of billions of dollars have been invested in exotic hedge funds that few people can pretend to fully understand and that have been responding to the market in unexpected ways. Investors don’t even have an accurate idea of the value of those funds and related investments.

 

And the great bugaboo, of course, is the subprime mortgage—though subprimes are certainly not the only cause of market woes. Yes, vast numbers of defaults may be in the offing; yes, we may see the number of foreclosures rise. But the real problem today is that no one knows where the next problem will show up. Ailing loans have been stripped and tranched (split into differently-valued pieces) so that they are no longer identifiable. An investor in Shanghai may discover that he owns slices of mortgages for homes in Azusa that are in foreclosure, threatening the viability of his hedge fund.

 

What is clear is that nothing is clear, nothing is certain. And until we achieve some degree of certainty, the markets will remain absurdly volatile, with occasional stock market jolts that dramatically over-express the actual possible losses at hand.

 

We have, in short, a time of panic in which it’s impossible to predict the future direction of any stock market—indeed, of any stock. And since dicey mortgages are the demon du jour, we have lenders who’ve grown very uneasy about writing the mortgages they had no problem with a few months ago, and the organizations that bought those mortgages (though Fannie and Freddie are doing what they can to help) are no longer interested in what currently looks to them like throwing good money after bad.

 

We will, I believe, look back at this time with amazement and even humor. And it won’t be very long from now. The problem is that so many assumptions about how our markets work—notable among them the assumptions that we now have computers that can find the right investment under any market conditions and that it’s a great idea to invest with borrowed money—have been shaken profoundly.

In the meantime there are good lenders making loans. If you are looking at needing a Home loan for a purchase or refinance I am compiling a list of Lenders you can count on. Stay Tuned.