The next shoe to drop: $6.7 trillion in commercial real estate

Remember three years ago when the subprime mortgage market showed signs of collapsing? My articles about shorting the now-bankrupt NovaStar Financial -- whose now-pink-sheeted-stock has fallen from $116 when I suggested shorting it to a split-adjusted 25 cents and just warned it could file for bankruptcy -- drew significant hate from people who were positive its stock would go up. It took a few years, but by last summer the subprime mortgage market was collapsing. Worse, the subprime mortgage-backed securities (MBS) that institutions bought led to the near collapse of the global financial system.

But that's all over now and it's smooth sailing from here, right? Not so fast! Now a related market looks poised to implode and it remains to be seen how much damage that implosion will cause. I am talking about the $6.7 trillion commercial real estate (CRE) market and the parallel $700 billion CMBS industry.