After last week’s wild ride for the credit markets and mortgage rates, JP Morgan Chase & Co. said in a report late Friday that Wall Street firms are facing a “systemic margin call” as the financial markets face a reinforcing downward pattern of writedowns. From Reuters, who covered the analyst report:

“A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages,” according to the report co-authored by analyst Christopher Flanagan. “We would characterize this situation as a systemic margin call.” The credit crisis that began about a year ago will likely intensify after Friday’s weak February U.S. employment report “that most definitely signals recession,” JPMorgan said.

One such victim of this crunch has been troubled ultra-prime mortgage lender Thornburg Mortgage, which has seen margin calls on its investment grade Alt-A RMBS portfolio put the company on the brink of insolvency. Much of the current mess hit its latest high note when rumors of a fire-sale at UBS AG, which allegedly dumped more that $24 billion in Alt-A RMBS, took hold early last week. The result was a quick deleveraging in the credit markets by hedge funds and other investors that managed to sweep up even agency-backed mortgage debt, pushing yield spreads for Fannie Mae-backed bonds to their highest level in more than two decades. The Financial Times reported Monday that the market pressure likely has yet to play out:

“Risk reduction is firmly on the menu,” said Willem Sels, credit strategist at Dresdner Kleinwort. “We continue to believe that risk positions in general are being closed or de-levered on the back of more demanding prime brokers and a partial unwind of the carry trade.” “The sell-off is particularly painful and likely to cause such sales because of its speed, amplitude and because it is occurring in many asset classes at the same time.”