Even armed with strong intuition and objective analysis of available data, the views of those concerned about impending fallout in the U.S. housing and credit markets remained quite unpopular. Although hindsight has proven the prudence of those who developed short strategies in subprime mortgage credit and home price performance during 2005 – 2007 (e.g., Scion, FrontPoint, Cornwall, Lippmann, Paulson), execution of this strategy entailed foresight and fortitude. Those who acted on their short views were bold, courageous, and shouldered plenty of risks on their road to riches.

"The housing market has been very strong for the past few years...Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise, but not at the pace that they had been rising. So we expect the housing market to cool, but not to change very sharply. If the housing market does cool, more or less as expected, that would still be consistent with a strong economy." Ben Bernanke, President Bush's Chairman of the Council of Economic Advisers February 15, 2006

The risks were fundamental and significant, many the result of intrinsic complications of the financial instruments chosen as the vehicles to transport them. For example, those investors and traders who bought subprime CDSs to profit from an expected decline in the capital value of houses shouldered enormous basis risk in using financial instruments with cash flows and prices derived from mortgage bond performance (e.g., swaps on synthetic subprime mortgage CDOs or the ABX index). There was counterparty credit risk. Even for those convinced that a dangerous home price and credit bubble had already formed, nobody knew when or how it would burst: if you shorted too soon, or if the mortgages or indexes backing your CDS weren’t the right vintage, you risked losing a lot of money, your job, or both. Despite hundreds of billions of dollars in aggregate notional contract value in the subprime CDS market, illiquidity was a significant potential risk, especially for “custom” and single-name CDO swaps. The related price risk and potential exit costs for those “short housing” via subprime credit protection devices were underscored by the perplexingly stubborn price firmness in mezzanine subprime bonds and CDSs through most of 2007, even as home prices began falling (and subprime mortgage delinquencies increasing) across the U.S. in 2006. Influential government policymakers and presidential advisers planted further seeds of doubt for those inclined to short or hedge housing exposure, even as the market peak was approaching. Finally, there was the ever-present possibility that, in the face of a severe home price downturn, the federal government would step in and implement extraordinary policies to prevent the American Dream from melting down to an American Nightmare, and thereby diminish or eliminate the rewards to the short risk-takers. Of course, the government eventually did step in, and in rather extraordinary fashion – but not until after the shorts managed to realize their gains.