Dean Baker explains:People up and down the income ladder are defaulting on their mortgages in record numbers. After all, why pay off a $400k mortgage on a home that is worth $300K?I thought that everyone understood this point by now. The problem is the collapse of the housing bubble. It showed up first in the subprime market because these were the most vulnerable people, but the collapse of the subprime market is just a portion of a much bigger problem.How big a portion? We don't know! Which is why the market is now running on rumor, speculation, and hearsay. That's the fun part of this financial crisis. It's surprising! Take the case of MF Global, a brokerage firm which saw its stock drop 65 percent this week on rumors that the billionaire Joseph Lewis, who lost a fortune in the Bear Stearns debacle, would have to pull out of the firm, and that the firm was about to lose tons of money in the repurchase market. Only two problems with this information: Lewis isn't involved in MF Global, and MF Global doesn't invest in the repurchase market. Even so, this morning, the company's shares were down 46 percent from the Friday close. Bet no one was expecting that!(Photo used under a Creative Commons license from Flickr user Waiti.)
