I got some inside information on the macro-financial situation.
It seems that institutions that hold portfolios of financial assets based on residential real estate are in a fix.
Two years and counting into the crisis, these markets are still seized up but good.
This means that at least some of those institutions are sitting on portfolios that are riskier than they’d like, and they cannot find partners to trade away that risk to.
This will all just go away if markets continue to moderate. But if markets worsen, there will be losers because of bad luck rather than an inability to recognize the source of the problem.
This is sort of like a game of musical chairs in which the music has stopped, but no one has grabbed the empty seats yet.
