Hundreds of thousands of Americans are defaulting on billions of dollars of mortgage debt. That much we do know. What is not at all clear, however, is who will shoulder the ensuing losses.

Commercial banks, investment banks, hedge funds and insurers have lined up in recent days to explain how they will not be badly affected. Yesterday Lehman Brothers followed Goldman Sachs in playing down the impact. The opacity of the mortgage market, the tendency of mortgage originators to sell on loans to other investors and the burgeoning credit default derivatives market make it difficult to know who is holding the baby.

With $1,200 trillion (£620 billion) extended in US sub-prime mortgages and house prices falling in many states, the final bill could be very large.

The casualties we do know about so far are the mortgage originators. They include large organisations such as New Century Financial Corporation, whose shares were suspended this week, and 30 other lenders, which have failed.

HSBC is another suffering because it holds sub-prime mortgages on its own books, this month writing off $2.2 billion of mortgages bought from other brokers.

Banks that lend to originators are also prospective losers. Barclays is a lender to New Century. Royal Bank of Scotland has a $1 billion line of credit to another struggling originator, Fremont General, though not a cent has been drawn down.

Next in the chain are the investment banks, which buy up huge portfolios of mortgages from the originators and briefly hold them on their books. They then package them into tradeable mortgage-backed securities. Portions of these are in turn packaged into securities known as Collateralised Debt Obligations and sold to pension funds.

Most of these CDOs are low-risk but the more junior tranches, sometimes known as equity tranches, are much riskier, because they shoulder the first 5 or 10 per cent of losses in any loan portfolio.

Adding still further to the complexity are instruments in the credit derivatives market that allow institutional investors to buy or sell the risk of a borrower defaulting.

Someone, somewhere owns the toxic waste. Regulators are hoping it has been dispersed widely enough to prevent serious pain.

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