Close but not quite. The prices of homes taking a nosedive don't necessarily effect existing MBS. The problem is that when people default on their loans, the "guaranteed income" of AAA securities goes away and the security deleverages. This has scared everyone from the CDO/MBS/ABS market and now liquidity has dried up too.
I don't agree with your statement about regulation and the credit crunch. Poor risk pricing didn't help. But proper risk assesment wouldn't have prevented morons in booming housing markets from "keeping up with the Smith's"
