MORNING YAPS

S&P expects substantial increase in risky-mortgage losses
A more dismal assessment from Standard & Poor's of expected losses on loans backing mortgage securities will likely hit bonds that originally carried AAA ratings, the credit rating agency said. S&P is expecting such losses to reach as much as 40%. The company's assessment is another blow to investors in the housing market. CNBC/Reuters (7/6)

California's debt cut to BBB, two steps above junk
The rating on California's long-term, general-obligation debt has been downgraded by Fitch Ratings to BBB, a move that puts it just two classifications above speculative-grade issues, commonly called "junk." A spokesman for State Treasurer Bill Lockyer said it was just a matter of time before the two other major credit rating agencies, Moody's and Standard & Poor's, take the same action, in response to the state's budget crisis. Reuters (7/6)

Illinois banks brought down by hybrid securities
Six Illinois banks owned by the Campbell family collapsed Thursday, in large part because of large positions in trust-preferred securities. The banks started acquiring the securities in 2005, when they were a popular Wall Street vehicle. The Wall Street Journal (7/7)

Deteriorating economy raises questions about stimulus
With unemployment at 9.5% and seemingly still climbing, many Americans are asking whether the government's economic stimulus is big enough to pull the country out of its slump. Some are concerned the money is not being put to work fast enough. Others doubt the money is being used the right way. CNNMoney.com (7/6)

Investors to look for recovery signs during earnings season
When companies begin to report second-quarter results this week, investors will be searching for "green shoots," or evidence of economic recovery. "The market is not going to care about the absolute numbers, it is going to care about guidance," said Burt White, chief investment officer at LPL Financial. "The market now sees in the economy that things are looking to be a bit better [and] it is going to expect that companies can see that in their businesses." Financial Times (tiered subscription model) (7/6)