A year ago, however, with the subprime mortgage meltdown of August 2007, I became certain.

Some, observing the crash of the sub prime mortgage market, say, Don t worry, it is only a problem in the real estate sector.

That time is over, as the breakdown of the American mortgage securitization market has shown.

The state is an epicenter of the housing bust and the foreclosure crisis.

After financial implosions, such as the collapse of the dot com bubble in 2000 or the sub prime meltdown of 2007 8, such views appear arrogant.

Moreover, the US housing market appears to be stabilizing....Overall, the US mortgage market has remained resilient, although the sub prime segment has deteriorated a bit more rapidly than had been expected.

But, in America s home mortgage market, this is much less common.

It is that their economies could be dragged into much deeper crises than those that will be experienced at the epicenter of the sub prime debacle.

Small wonder that when the sub prime market blew up, these markets also froze.

But that is precisely why a government managed mortgage market is dangerous.

Credit risk in the mortgage market is being assumed by the government, and market risk by the Fed.

In Mexico, the market for new low and middle income housing has grown rapidly, thanks to the creation of a market for residential mortgage securities in 2003.

The housing recession the worst in US history and worsening every day will eventually see house prices fall by more than 20 , with millions of Americans losing their homes.

One sure way to reduce the savings rate in China would be to develop an American style mortgage market there.

Such a statement would have been unthinkable in the years before the sub prime mortgage meltdown.

MUNICH Once upon a time, stocks were risky and collateralized securities were safe. That time is over, as the breakdown of the American mortgage securitization market has shown.

This brings us back to the US Treasury s plan to spend hundreds of billions of dollars to unclog the sub prime mortgage market.

The Right Weights for Mortgage Risks

Occupy the Mortgage Lenders

So far, the sub prime crisis has had a limited direct impact on Latin America s mortgage markets.

Losses are spreading from sub prime to near prime and prime mortgages, commercial mortgages, and unsecured consumer credit (credit cards, auto loans, student loans).

Thus, although delinquency rates have risen slightly in Mexico since the mortgage market was created in 2003, only about 5 of mortgages are between 31 and 60 days late. Only 2 are between 61 and 90 days late.

The fact is that the European economy has been affected more by sub prime mortgages in the United States than by a carbon price in Europe.

America s mortgage market remains on life support the government now underwrites more than 90 of all mortgages, and President Barack Obama s administration has not even proposed a new system that would ensure responsible lending at competitive terms.

Mortgage debts, too, must be written down.

To its credit, the IMF not only acknowledges this, but it also provides evidence that developing countries with capital controls were hit less badly by the fallout from the sub prime mortgage meltdown.

We saw this in the summer of 2007, when the subprime crisis erupted, and again in 2008, following the collapse of Lehman Brothers.

After the subprime crisis erupted, mortgage and consumer debt was paid down by households either with their savings or by default.

An interest rate rise might take the heat out of the mortgage market, but it will also chill the rest of the economy.

The current crisis of the conservative cycle reflects the massive build up of bad debt that became apparent with the sub prime crisis, which started in June 2007 and has now spread to the whole credit market, sinking Lehman Brothers.

Mortgage traders in London not many of whom were Swiss took on enormous risks that almost brought down UBS.

Mortgages became more widely available.

Mortgage brokers were happy to get in on the act.

It was called securitized mortgages.

Unlike virtually every other country, US residential mortgages are effectively no recourse loans.

Hence, the Fed s intervention in the housing market is really an intervention in the government bond market the purported switch from buying mortgages to buying government bonds is of little significance.

The entire sub prime market is largely a decade old innovation the word sub prime did not exist in any language before 1994 built on such things as option adjustable rate mortgages (option ARM s), new kinds of collateralized debt obligations, and structured investment vehicles.

The stock market dropped sharply. Home prices fell 40 , completely wiping out the equity of one third of all homeowners with mortgages.

Indeed, the foreclosure rate is increasing.

The problem was not just sub prime mortgages.

a rapid reduction of insolvent households debt burden, preceded by a temporary freeze on all foreclosures

Second, job losses will lead to a more protracted and severe housing recession, as joblessness and falling income are key factors in determining delinquencies on mortgages and foreclosure.

As a result, mortgage brokers maximize their income by generating larger volumes of mortgages, as do the banks that package these loans into mortgage backed securities (MBS s).

In Mexico, all mortgages carry fixed interest rates, unlike the infamous exploding ARMs that left US homeowners ruing their choice of adjustable rate mortgages when interest rates rose. Mexican mortgages are indexed to inflation, but the state mortgage agency links that index to the minimum wage and makes up the difference if mortgage interest adjustments for inflation outpace wage growth.

But mortgage markets remain underdeveloped in most emerging economies.