Three great reads can be found here:
The Big Picture - Stick it to 'em
Who Holds all that "Agency Debt?" (a whopping 25% of GDP, or $1-trillion is held by China)
Why can't people take sound advice when it's smacking them in the face? Here's an excerpt from this link; taking note it was written in September of '07:
"...if loans were extended to people who shouldn't have received them, real estate prices would have been bid up higher than they should have been. And it is a propagation mechanism in the sense that, as long as house prices continued to rise, all sins were forgiven. Even a completely fraudulent loan would not go into default when there's sufficient price appreciation, since the perpetrator is better off repaying the loan in order to enjoy the capital gain.The problem is that, as this process gets undone, both effects operate in reverse. A credit crunch means that some people who should get loans don't receive them, depressing real estate prices, and as prices fall, some loans will become delinquent that otherwise might not. If such fundamentals are indeed contributing factors on the way up and the way down, the magnitude of the resulting decline in real estate prices, and their implications for default rates, could be much bigger than the reassuring numbers Mishkin invites us to remember based on the historical variability of these series. What worries me in particular is, if we see this much in the way of delinquencies and short-term credit concerns in the current economic environment, in which GDP has still been growing and house price declines are quite modest, what can we expect with a full-blown recession and, say, a 20% decline in average real estate values?"