Repricing Risk

Looks like risk is finally beginning to return to the markets:

June 21 (Bloomberg) -- Merrill Lynch & Co.'s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street.

A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market.

Remember those go-go days of lending to anyone with a pulse? And remember all those folks who felt they could buy these mortgaged backed bonds with impunity and still get a very high return? This would be a big whooops.

Is this the beginning of a mortgage meltdown? Or is the a small blip in a market awash in cash? Depends on which economist you talk to. Let's hope the more optimistic hand is right.