John Mauldin's latest letter on "The Subprime Debacle: Act 2"

This is simply a MUST READ, and very frightening article discussing the problems with the entire Mortgage Backed Securitization process. Read it, then RE-READ IT!!:

The Subprime Debacle: Act 2

I reiterate.. the only "safe" place, IMO, to invest and hide from this issue is cash, possibly physical gold (can't believe I'm saying that), or the monoline insurers who stand to "get off the hook" for billions in insurance claims and liabilities pending against them.

I may also initiate a position in FAZ, the ultra-bear financial ETF.

There's also a possible "silver lining" to this mess. With 60% of American homes now registered under the MERS system, it's likely they will find it increasingly difficult to obtain title insurance to facilitate a sale. That means the remaining 40% of American homes, owned outright, or where the chain of title has not been violated, could see growing appreciation.

And given that the majority of mortgage loans that WERE NOT securitized, were issued by regional banks and savings and loan institutions, they may find the value of those homes increasing, thereby taking pressure off the regional banks who played by the rules and keep the mortgages on their balance sheets.

EDIT: 17 Oct, 2010 Letter from the Association of Financial Guaranty Insurers (AFGI) to the CEO of Bank of America (symbol:BAC), Brian Moynihan, regarding violations of "Representations and Warranties" by BAC in the loans that the Monolines insured. In the letter it's stated that some $10-20 Billion of these loans need to be repurchased by BOA and put back on their balance sheet.

AFGI letter to BAC

The heat is rising on the big banks to make good on their obligations to insurers and investors.

It will be interesting to see if BAC blinks, or attempts to further delay the inevitable.

Scrutinizer