ABX Index shows $180 billion more in subprime losses

Reuters reported that prices on the ABX Index of the United States subprime market indicate a further $180 billion write down in addition to the $130 billion in losses already taken according to analysts at Dresdner Kleinwort.

The ABX indexes are based on only specific slices of the underlying asset-backed securities. The traded triple-A tranche, for example, refers only to the most junior, or riskiest, slice of all the AAA tranches in the underlying deals.

Many loss calculations derived from ABX prices do not take this into account, while another common mistake is to ignore the time value of money, the analysts found. The forecast losses will play out over the next two years as rates are reset on adjustable rate mortgages.