What the Real Estate Crash Means for the World

The London Telegraph's Ambrose Evans-Pritchard picked up recently on the story. Home prices in Riga, Latvia, rose a staggering 61 percent in the 12 months ended in March, making houses in Riga more expensive than houses in Berlin, but prices are now falling, down nearly 5 percent over May and June, and more since. In Kazakhstan, where mortgage credit expanded 100 percent in a year, the $40 billion bubble has popped, with homes in some quarters of Almaty, the nation's largest city, falling 20 percent over the last three months. The share prices of six of the top Kazakhstan lenders halved between July and early October, and some banks are experiencing runs. While the sums involved pale in comparison to the size of the U.S. mortgage market, the effects on the people of those nations is every bit as serious, and the welfare of the population is the metric by which such crises should be measured.

Of course, that is not the whole story. Because of the pyramid game that has been played, a whole series of other instruments are crashing. This includes various pieces of or "tranches" of Mortgage Backed Securities, with the more risky parts of various layered and spliced mortgages crashing first. Then on top of that, the MBS themselves have become the basis for CDOs, Collateralized Debt Obligations, which can have other tranches of other things mixed in, like in Credit Debt and Student Loans.
Also see, this.