In a recent column in The New York Times’ opinion section, economist Paul Krugman parallels the current state of the collateralized debt obligation market with Enron-style accounting practices of the 1990’s stock bubble. Krugman argues that the ratings agencies, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings have been approving risky CDOs with high ratings even when the bonds don’t deserve such ratings.
Krugman says that the price of a basket of loans within the $800 billion subprime mortgage market has lost about 40% of its value since January. He also estimates that losses in the CDO market may range between $125-250 billion and cites some analysts as believing that a wave of problems in the CDO market will further dampen housing prices.
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