Since December last year, 31 subprime lenders have gone to the wall.

The collapse of the subprime market is now gathering pace. Moreover, things are going to get much worse. The subprime mortgage market is dominated by exotic products - interest only, ARMs, no-docs. This year is when interest rate adjustments really start to kick in, and many vulnerable borrowers will start to suffer from serious cash flow difficulties. Already the default rate on subprime products is running at 13 percent. Expect that number to rise sharply, and as it goes up, it will take more and more subprime lenders down.

With perfect foresight, everyone now sees the horrible chain of events that lies before us. As the subprime market collapses, lenders stop fuelling loans to people with low credit. As these people exit the market, housing demand in the low income sector will fall off. However, the decline in prices will gradually infect the entire market. As prices come down, panic will set in. Housing equity will collapse, ending the HELOC-led consumption bubble. New home construction will fall off. This is all leading us to one place, foks - recession.

It is going to be ugly.