The jury is still out on whether the Fed's decision for cuts of half a percentage point will fix the problems in the US market. The cuts were expected so the market for now sees it as a sign that Ben Bernanke is determined to get liquidity flowing again and avoid a US recession.

But there are big issues that still have to be resolved. Businesses need to reprice strategies that relied heavily on securitisation and the securitisation markets need to be made more open and transparent. Also, the debt rating systems that helped create this mess need to be fixed up.

And the fallout from the subprime crisis is likely to continue and we haven't seen the worst yet with total layoffs created by the crisis set to reach record levels.

With that in mind, I sat down this week to interview David Rosenthal, the managing director of Los Angeles based real estate consultancy Curtis-Rosenthal about the subprime mess.

He was optimistic but then let's remember he is not exactly a neutral observer in all this.

SOX FIRST: Are we over the over the worst with subprime?

ROSENTHAL: Probably not. The reason for that is that the investors who are holding some of the subprime loans are out in the secondary market so there is no clear trail to see who is holding that paper. Having said that, I truly believe that the sound bites that everyone hears in the headlines, as dramatic as they are, don't really reflect the full situation on what's going on. It makes great headlines to say the American economy is in trouble but in reality, subprime represents less than 14 per cent of the total residential mortgage market which means that 86 per cent of the mortgage market is continuing to be healthy and thriving.

SOX FIRST: Still, there is a flow-on effect and some are forecasting recession. What's your take on that?

ROSENTHAL: I have been studying economic reports from economists all over the country and the curious thing is the underlying fundamentals of the economy continue to be very strong. The Dow is up, manufacturing is up, retail sales are up, unemployment claims are down. Those are not the signs of an economy in trouble. They are the signs of an economy that is growing, maybe a little slower than it has in the past but a strong steadily growing economy. It is having a situation in the financial markets but frankly that situation doesn't seem to be impacting people on the street.

SOX FIRST: So how long do you expect this subprime issue to go on for?

ROSENTHAL: The expectation I am hearing is that over the next three to six months, things will continue to shake themselves out. No-one can clearly say but you can imagine indigestion going through someone's system. It takes a little while to get it through the system but once it's through the system, the system will be much better positioned. I think there is short term pain but frankly, this is a repositioning that has been a long time coming and it will end up being very healthy for the economy because the underwriting of residential mortgages had become irrationally exuberant to the point where unqualified borrowers were able to buy homes they couldn't afford. That's bad under any circumstance and from anyone's point of view, that needs to shake its way though the market place. The people who made those loans will be taking a financial hit. Countrywide is obvious example. That needs to go through the system but the new loans that are being made today,
they are being made at higher levels of credit and lower levels of leverage or gearing.

SOX FIRST:The ratings agencies have come under fire for their role in this. What are your views?

ROSENTHAL: I think the criticism is valid. I think they had become too liberal in their rating of some of those securities and I think it's extremely healthy that Congress has pushed back, that there is a Congressional oversight committee that is pressuring the ratings agencies to tighten up their underwriting standards. The changes that they have made will be in place for a long time. It's like the pendulum swinging. I look at that as a very healthy thing for the market place. The challenge that the market place is feeling now is there is product out there waiting to be securitised, that was underwritten by the old mortgage underwriting standards and the new loans that are being made are being made subject to the new better standards. There is a disconnect but as that works its way through the system, I think the system will work its way back to normal.