The FED has been hiding the fact that there are 100's of billions of bad debt out there. But, they cant hide it anymore. Some major financial companies could become insolvent over the next few weeks. We may be looking at a MAJOR crash of epic proportions. I wouldn't go long anything except to catch a bounce for very short term. The big money can be made from the short side.
When house prices fall, all mortgage-backed securities fall. Not just subprime-backed ones. Institutions might prop them up for a while, but that cannot be sustained. The value of the underlying asset is the primary factor controlling the price of any mortgage-backed asset (securities, CDOs, security derivatives etc.). There will be a spillover to the general market. As a long-term investor, I plan to ride it through, since I expect Baidu's potential and fundamentals to remain solid. Might buy SKF or SRS - thanks Johnprofit for the link.