ON THE VERY FIRST DAY OF THE ABX INDEX...

That would be January 19, 2006, the beginning of the explosive growth of the Big ShitPile. The ABX indicates how safe investors think the CDOs and other instruments based upon sub-prime mortgages really are. Bloomberg lets us know that some people saw problems well before the ratings agencies took any action:

By September 2005, some within Deutsche Bank were beginning to worry about defaults on subprime mortgages and how that might affect the securities based on them. A team of Deutsche Bank analysts that month warned of growing subprime market risks.

The ABX-HE index started trading on Jan. 19, 2006. At 8 a.m. on the first day, John Kane of Sorin Capital started phoning dealers. Kane, then 27, was a trader at Sorin, which runs hedge funds that invest in mortgages and other securities.

His auto mechanic, in describing the debt burden he was carrying to own a home, had planted the idea in Kane's mind that the housing market might be in trouble. Kane thought it through, ran an analysis on available data, and decided to wager against, or ``short,'' subprime. To do that, he turned to the portion of the ABX index dealing with the lowest investment-grade subprime securities.

Investors Go Short

The trouble was that quotes from brokers selling the ABX were already dropping, an indication that a number of investors wanted to do the same thing.

``All the other dealers were already scared'' and dropping their bids, Kane said while on a panel at a November industry conference. ``All but Goldman. So I bought from them.''

On its first day, the index traded more than $5 billion. The cost of wagering against the securities was rising, a sign that traders saw an increased chance of default. An early warning was visible to anyone who knew where to look.