"Après Moi, Le Déluge"

What was once true of public debt then is just as applicable to private debt today.

Ever since the French Revolution, Madame de Pompadour's comment, "Après moi, le déluge" (after me, the deluge), has looked like a callous if accurate prophecy of the political cataclysms that began in 1789. But decades before the Bastille fell, French writers had used the phrase to describe a different kind of selfish recklessness--not toward the flood of revolution but, rather, toward the flood of public debt.

This news is no surprise, really:

Subprime-mortgage bonds created in the first half of 2007 contain loans that are going delinquent at the fastest rate ever, Moody's Investors Service said yesterday.
The average rate of "serious loan delinquencies" in the securities has been higher than for bonds created last year, Moody's analysts Ariel Weil and Amita Shrivastava wrote in a report. Serious loan delinquencies are those 60 days or more past due and include properties in foreclosure or already foreclosed upon.

"It is shocking what you see," said Kyle Bass of Hayman Advisors L.P., a Dallas hedge fund that bet the U.S. housing market would fall. It reported a 400 percent return on those investments.

"Anything securitized in 2007 has got to have the worst collateral performance of any trust I've seen in my life," Bass said.

Moody's, Standard & Poor's and Fitch Ratings Inc. have been downgrading subprime securities issued in 2006, and Fitch said Wednesday that it now was reviewing ratings on bonds created in 2007.

Mortgages written in the United States typically are bundled with other mortgages and sold as bonds to investors. The health of those bonds rests on the strength of the individual mortgages in the bundle.