Last week, I was a bit worried about the potential effects of subprime on the earnings of Wall Street’s biggest brokers. Then Goldman Sachs made it clear on Tuesday that subprime is an inconsequential part of their biz. Lehman followed up and assured everyone that it was only 3% of revenues and they had hedged their positions. If you want to find one reason for the market turnaround yesterday, a relief from Lehman’s assurances would be my choice. Today, Bear Stearns did their part by explaining how small subprime was as a component of operations and how they scaled back their exposure months ago. Poof!! The problem with specific stocks was vaporized.

I have to say that I am sincerely impressed with how these 3 companies have put the weight of the subprime world on their back and soothed investors with their upfront containment strategy and sophisticated risk management. It went so far to calm general market fears that even the pureplay companies appreciated today (LEND +56%, NEWC +101%, NFI +23%, FMT +11%). Of course, these are speculative bets that would work great for CNBC’s “investing” challenge, but not for me. I don’t doubt that there was excessive selling and these firms will get gobbled up - I just don’t play in the bargain hunting guessing game.

While I am happy that the market is probably ending its fascination with subprime and that the leading brokers are not going to get hammered, the vaporizing of subprime has only been achieved as a market event. Companies can spread out the problem or hedge the risk all they want but they cannot make it disappear as an economic event. Now that the pureplays have taken their lumps and Wall Street has been immunized, there is still an economic reality to deal with. Up to 2 million people may lose their homes and that is a sad reality. Maybe it won’t be easy to isolate that pain in the markets anymore, but the danger is believing that the problem will just disappear. As Alan Greenspan said today, disposing all these homes may have a spillover effect if values do not hold and in my opinion vaporizing subprime may not be as easy as GS, LEH and BSC made it look.