Most of these people were doing cash out refinancing. They may be in the same position now as many of the subprime borrowers, upside down on their mortgage, owing more than the house is now worth. I personally know a number of people in that situation. Many took just bull rate mortgages at a low teaser rate, just like the subprime borrowers. Many of them are now having problems refinancing to a fixed-rate, and can’t afford the rate adjusted, fully amortizing payments.

So if you are trying to calculate the extent of the problem based on only subprime, you will underestimate it.

As far as an amount that I might agree to over drinks as the maximum scope of the mortgage problem, something approaching $1T seems reasonable enough. I’d expect that sometime before we were too hypothetically drunk, I would object that he omitted subprime modifications and prime everything (a reasonable critique of the “model”), to which he’d probably say that the $417K-per-adverse-event figure covers those in principle. (This Partly defuses jck’s critique.) None of this is to say that it wouldn’t be desirable to have separate and more finely tuned prime and subprime inputs for the fundamentals.

As for the vagaries of the market and marking to it, that’s a good point too; it’s reasonable enough to describe that as having an unknown effect.

In the end, having something that looks like a ceiling but isn’t a supremum leaves me feeling underinformed. It seems that the amounts written off are large, but it hasn’t been established whether the worst is over or is yet to come.

(Substantially identical comment also left at my place.)

It is absurd for the market to be perplexed about the uncertainty of current numbers, given that the actual loss experience that will compare with current expectations will play out over the next several years and can’t be known before then (e.g. emerging ARM defaults). The good thing about this is that the worst case losses are now being considered by markets well before they are known, so it is reasonable to assume that the risk will be reflected efficiently in the market fairly soon.

Yeah, now he’s a hero. I wonder how long it took for this heroism to be determined.

A comment by someone who strongly believes in getting out early with the small loss, and whose “heroism” has often been challenged by her “you coulda ridden it out!” brethren. Heh.

Tanta

“What happened this week was a result of the prices of mortgage securities falling sharply in the past few weeks. Finally on Wednesday, the rating agencies moved to cut ratings of more than $12 billion worth of bonds. This forced the “hogs” mentioned above to sell their bonds into a market that was already nervous about further weakness in the US economy.

The result was, of course, carnage. Being unable to sell all the securities they had, many of the investors had to sell other securities, including corporate bonds hitherto unaffected by the rating moves.”

Because most banks use leverage, thus the sudden move of AAA to Default leads to fire sale in other debt. The danger of this problem is time, not money. Any banker will tell you that time is money, and money arrives late on time can’t save the bank.