1.5 trillion is probably a pretty good estimate of the total agony, as posted by other contributors. It will will undoubtedly take a year or two to come through the pipeline as banks, reluctant to come “totally clean” on the issue, pressure their auditors not to write down balance sheets too quickly.
However, the real problem, as others have pointed out, is banking sector regulation to stop them making loans to people who can’t possibly repay them and creating derivative financial products based on such loans, which they must have known perfectly well were highly likely to go delinquent. Indeed, making such loans is totally immoral, but it’s even more dishonest to sell the repayment risks of such loans to other people in such a wanton and irresponsible manner, not to mention the scandal of all the subprime derivative “AAA” ratings. In the US housing bubble, the “JDI at any rate no salary details asked” attitude of the loan purveyors was bound to go bust – it was a case of the blind leading the blind in the lusty thrust for profits and fat commissions and too bad if the nation has to pick up the tab if and when Freddie, Fannie et al. need to be bailed out – where’s the “corporate governance” in all this; it’s quite obviously just “corporate greed” and the only thing that will stop it (ie. human nature) is the introduction of proper regulatory measures.
The FED and the Treasury seem reluctant to do much other than issue a liquidity ocean on the nation’s back at each and every crisis juncture in an attempt to avoid recession. We have are our problems too here in France but I’m sure most of the developed nations would do better with less budget deficits, smaller commercial deficits, less credit, less consumerism, less subsidies, less tax etc. ie. live more within one’s means and increase savings. More restrictions are probably the only way to achieve this end and avoid going from one bubble/financial crisis to the next in a world of total economic liberalism. The cost in human terms of an inconsequential attitude by government on the issue is bound to be great.
Let’s see. Total values on all homes in America is about $20 trillion. Say an average 25% decline before it’s all said and done. That’s $5 trillion that will show up on somebody’s balance sheet. Most of that will go to home owners that have a bigger equity cushion. So maybe 1/3 will show up on financial institution’s balance sheets. Total write downs of $1.5 trillion seem to be very realistic. So we’re about 1/3 done. Many bamks won’t survive. Make sure you don’t have more than the $100K FDIC limit in any one bank.
San Diego CA:
Funny how you say “making blanket statements….” and then conclude with one of your own and no info to back it up.
Look at this chart and explain how there will be a “SHARP” drop off in bad loans by Q109.
http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html
Unless you think that by that time everyone will have punted before their loans reset which, I will admit, is possible given how things have been going.
Subprime and Alt A mortgages stopped being written about two years ago. We should see banks writing down loans through the end of this year and then see a SHARP drop off in bad loans by the end of 1st Quarter 2009.
Making blanket statements about a long term credit problem is baseless media hype. Yes it has been a terrible run for the banks but they only have a few more months of pain before they turn the corner.
Every time the Market races back up (like today’s current 300 points) I start to sweat. This continuous Chinese Fire Drill of giant money trying to figure out where to put their huge piles where it will continue to get bigger endangers us all.
No, banks are not done posting losses. The mortgage default rate we are seeing now mostly represents the effects of lending to people who couldn’t afford the loan in the first place. We haven’t really started yet with the people who could pay when they got the loan, but now they lost their job.
AND
I agree with POD in Atlantic City – the amount of unsecured credit card debt that American’s own is staggering. Not only that, but lot of it, like the mortgages, was lent to people who obviously can’t pay it back. Continued job losses will mean even a lot of relatively reasonable situations will default.
Banks, retail, media, importers, transportation, shipping, service. Which one of these is NOT going to be hurting during the following year?
If you have money in a fund that is jumping back into the market because they stupidly “invested” in short term commodities contracts, and now the lowering price on oil has them in a panic – you might want to consider moving it.
Accoding to the Austrian economists, boom times are the bad part of the cycle and the corrections are the resetting the the malinvestments of the boom times….but our money policy is trying to inflate/loosen credit to keep the boom times going. Bad medicine after bad medicine, yet we expect to get healthy.
You think banks are having problems now because people are walking away from their mortgage obligations. This is NOTHING! Wait until about a year from now when people start defaulting on their maxed out bank sponsored credit cards. That’s unsecured debt boys and girls….a total loss.
Bottomed out?…That’s a good one.
If the Administration fails in its efforts to hype-up and inflate an “Alternative Energy Bubble” toot-sweet, then we will have another several trillion dollars worth of losses to write down.
Along with the financial institutions, collectively, our only hope is for a new bigger, better, stronger bubble.
Franklin, the only way you get a cut is if you make poor decisions and happen to be in a protected status by the State. Also, you can cut down on you productivity to get into a protected status. Let us productive people pay for your lack of motivation or bad decisions.
I agree with NOW: we get what we deserve. Nobody wants to experience a downturn, so inflation and taxes will inevitably go up. The producers and thinkers of the country will be grinded away. And we will have no one but ourselves to blame when things collapse.
So now, we get to pay taxes for roads, bridges, police, fire department, post office, etc and our neighbor’s homes. And Wall Street’s fat bonuses so they can parade in the Hamptons.
WHERE’S MY CUT!!???
Quote “As bad as this financial crisis seems right now, only eight banks have failed so far this year. That pales in comparison to the 534 that collapsed in 1989 – the height of the savings and loan debacle.”
LOL this is very funny the eight banks that have failed so far this year total 1/10 of the losses of the 534 savings and loans that failed in 1989.
Most of the savings and loans only had a few tens of millions on deposit.
LOL wait until Citi fails, WaMu and Wachovia that will put the total losses above the 1989 losses but because their will only be like 20 banks fail they will pass it off as not a big deal compared to the 584 in 1984. LOL
LOL remember FEMA manager Brown who said nothing was wrong in New Orleans while we watched people drowning in the fllod waters on TV before and after his T.V. broadcasts. LOL
Sounds like Bernanke and Paulson saying Freddie Mac and Fannie Mae were ok and just fine and dandy hours before they have to have an emergency bail out.
LOL
We are going to be paying for this decade long debt binge for quite a while, but it will be mostly the taxpayers bill. These blogs are too short to give in-depth analysis of fractional reserve banking, but this will end with a high tax bill and an inflated money supply. The productive people who save money will be the most impacted. I am not for sure how much longer the productive people will be able to stand the policies of the Fed and the State.
LOL , it’s already too late to save the American banking system. It’s bankrupt and has been drained dry of funds by bad loans made to people who were stealing our money. There is about 3 trillion dollars of loans that were made to people who never intended to repay them.
Add in the fact that the US government can not even meet it’s interest payments on it’s debt and you have the whole world trying to get out of US loans and T-bills and any other investment in dollars as fast as possible.
LOL the government is losing 57 billion an hour we are going down fast.
I expect right after the election this fall who ever wins will have to declare martial law next year.
half will most appropriately collapse, only to be bailed out by govt. vis a vis taxpayers….now we will work to pay taxes til 4th of july so we can celebrate tax emancipation day….in the old days, we would have a tea part..now we are a bunch of apathetic apologist sniveling cowards..no wonder we elect the same……
1.5 trillion is probably a pretty good estimate of the total cost, as posted by other contributors. It will will undoubtedly take a year or two to come through the pipeline. However, the real problem, as others have pointed out, is proper banking sector regulation to stop loans being made to people who can’t repay them and creating derivative financial products with.”AAA” ratings based on such loans. To avoid bank failures, the FED and the Treasury seem reluctant to do much other than issue more inflationary liquidity at each new crisis in an attempt to avoid recession.
However, here’s some food for thought: Goldman Sachs partner Gerald Corrigan’s report, “Containing Systemic Risk,” gamely proposed an ideal for Wall Street going forward: “Greater financial discipline at individual institutions must be reinforced by a renewed commitment to collective discipline in the spirit of elevated financial statesmanship … to put aside specific interests in the name of the common interest.”
Croesus believes this ideal is only realized in wartime.