Maybe Toomre Capital Markets LLC ("TCM") is a bit naïve. After all, who really will miss a fifty or two? Fifty Billion or Hundred Billion in losses, that is? Maybe the reader can pay this structured finance bill due to sub-prime and Collateralized Debt Obligations ("CDOs") valuation mark-downs from his or her wallet, but the Toomre Capital Market's wallet is likely to be more than a few dollars short on this monsterous tab!!

Wow! To put this number in a bit of perspective, consider the following: A collective $100 Billion tab would represent approximately 20 percent of all sub-prime mortgages securitized in 2005 and 2006. Did S&P and Moody's really incorrectly value the credit-worthiness of sub-prime mortgage collateral by more than ten or fifteen percent of total amount securitized?

TCM has been surprised all during the week of July 16th to 20th by the seeming disconnect between the United States fixed-income markets and their equity brethren. The Wikipedia.)">structured products market basically melted down early in the week with many dealers effectively refusing to position more sub-prime or more risky CDO paper at any price. Yet the stock market responds by going on to new highs.

Very early on Tuesday morning, TCM posted a longer commentary about the CDO sector in an entry entitled Can Wall Street Be Trusted To Value Risky CDOs? Late on the day Tuesday, the structured credit market was in total disarray and the number of visitors to the TCM site began to climb quite substantially. The web traffic continued to peak on Wednesday with many visitors looking for information on sub-prime mortgages, CDOs and other Wikipedia.)">structured products. (TCM also has been surprised in the past week by the number of visitors looking for information on "insurance linked securities" and wells notices associated with finite reinsurance scandals.)

On Wednesday, Bear Stearns, which has had a reputation for good risk management practices (at least until recently!!!), announced that far more substantial declines in the market value of its two troubled hedge funds than most market participants had expected. As of June 30th, Bear Stearns estimated that its High-Grade Structured Credit Strategies Fund was worth approximately nine cents on the dollar. After Wednesday's events, it no doubt was worth even less. Of course, the substantial credit line from Bear Stearns broker/dealer to Bear Stearns Asset Management of some $1.3 billion to support this hedge fund was substantially secured and there was nothing for investors in Bear Stearns debt securities ought to be concerned about. Investors in the more leveraged High-Grade Structured Credit Strategies Enhanced Leverage Fund were a bit less fortunate. As of June 30th, their fund was already deemed to be worthless. Yes, that is right… Bear Stearns managed to wipe out one hundred percent of the hedge fund's value from April 30th to June 30th.

And yet at the end of the day on Wednesday, the equities market seemed to shrug off the credit market news. The Dow Jones Industrial Average ("DJIA") in fact was flirting with the magical number of 14,000 and its first ever close above that august level…

On Thursday July 19th, Federal Reserve Chairman Ben S. Bernanke appeared before a Senate panel and, according to Newswire Today, stated that he was: "`Relatively optimistic' on Basel II deal prospects; China economy too oriented toward exports; don't have a 'magic' non-inflationary jobless rate; economy functioning well outside of housing; expects housing demand to stabilize soon; Fed moving as fast as 'responsibly' can on sub-prime; frustrated at slow pace of Yuan appreciation; GSE portfolios should be tied to a public purpose; haven't seen big effect from housing on consumption; high energy prices 'very painful'; no sign of Japanese Forex manipulation; repeats inflation the 'predominant' policy concern; still 'pretty substantial overhang' of unsold homes; sub-prime-related credit losses between $50-$100 Billion; U.S. needs 'diversified energy portfolio'; will be significant financial losses from sub-prime and Yen 'quite low,' but market determined."

And yet at the end of the day on Thursday July 19th, the DJIA finally closed above 14,000. TCM simply does not understand how the collective market ignores a $50 to $100 billion hit to portfolio values. Yes, credit risk is much more spread out across investor portfolios than it has been in the past. However, why is there not greater concern about what the CDO/sub-prime crisis is doing to overall portfolio return attribution? Is there still simply too much liquidity in the global economy?

On Friday July 20th, the equity markets finally declined a modest amount as the 10-year Treasury declined once again below the psychologically important fiver percent level. William Poole, St. Louis Fed President, said on Friday "As is often the case, the market's punishment of unsound financial arrangements has been swift, harsh and without prejudice."

Now there are emerging stories of other investors and organizations caught with unexpected exposures and realized losses from the sub-prime/CDO/structured credit events of the past month or so. These include United Capital Markets, Braddock Financial (a Denver-based investment advisor that specializes in Wikipedia.)">structured products) and their $300 million Galena Street Fund, Cambridge Place, and Basis Capital (out of Sydney Australia).

Did many investors also notice the hit that the CIT Croup equity took on Wednesday July 18th when it announced an unexpected $127 million dollar loss for the second quarter? The cause of the loss? Only a small $495 million dollar charge on a book of $10.6 billion in sub-prime receivables! TCM was not aware that CIT was in the sub-prime mortgage financing business or that its exposure could be so large. Of course, this loss only reflects approximately a five percent mark down in its book of receivables… Do you think perhaps the value of the collateral might already have declined just a tad bit more than fiver percent? Good luck in trying to sell such a large position in a market that quickly going all sellers!!!

This news trailed a tidbit hidden in the General Electric earnings report announced a few days earlier. GE's WMC sub-prime mortgage unit was being put on the auction block after it had lost $370 million in the first quarter and another $182 million in the second. Well, there is another half billion in sub-prime losses…

Perhaps other investors missed the news about Barclays PLC, the large British bank. The Wall Street Journal is reporting in a July 21st 2007 story entitled Barclays Spars Over Its Losses at Bear Stearns that Barclays PLC is sparring about its exposure to the failed Bear Stearns' hedge funds that could total as much as $400 million.

This WSJ article also mentions that securities litigation lawyers have been hired by certain investors exposed to the collapsed Bear Stearns hedge funds. Specifically, Scott A. Meyers, who focuses on the securities and hedge-fund industries at Levenfeld Pearlstein LLC in Chicago, said "I would be astounded if there weren't lawsuits, given the magnitude and speed of the collapse." He and others are investigating the how and why of the money lost in the Bear Stearns hedge funds. As Attorney Ross Intelisano, who has been hired by a wealthy Southern family and a New York-based fund of funds regarding the Bear Stearns situation, says "They feel that the information they received was either untrue or inaccurate."

No doubt there will be other surprises that will be announced in the coming months about other 'unexpected' exposures. The Basis Yield Alpha Fund last week informed its investors that it was down some 14 percent in June. The Basis Pac-Rim Fund announced a drop of only 9.2 percent for the month. Clearly with the recent price action in CDOs, sub-prime mortgage pools and other Wikipedia.)">structured products there is very likely to be further declines in portfolios with long exposures to these types of investments. The question is how long will it be before the collective markets begin to realize that there is something very significant going on in the credit markets.

TCM worries that many investors do not fully appreciate how much the investment game of the past several years is changing. Liquidity is going to be a much more valuable commodity than many realize or appreciate. Perhaps the Great Unwind is truly approaching? Reader's thoughts and comments are welcome.