How Big Is It?

Nice info porn in the WSJ, comparing the relative size of past crises to the current mortgage debacle:
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click for full size graphic

Crisis_20071209

courtesy of WSJ

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Fascinating stuff . . .

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Source:
U.S. Mortgage Crisis Rivals S&L Meltdown   
GREG IP , MARK WHITEHOUSE  and AARON LUCCHETTI
December 10, 2007; Page A1
http://online.wsj.com/article/SB119724657737318810.html

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Dec 10

    Totally under estimating the impact..that amount is going to be PER QUARTER even in the most conservative (non-MSM) estimations.

    leave it to the Rupert-ized WSJ to give it’s range of scope of that size.

    To the wholly uninformed it just looks like it “might” get worse than years of the same failed policy ala Japan.

    For all the noise it says very little.

    Ciao
    MS

  2. Ken commented on Dec 10

    It’s bigger than $450 million. We are still in the first half of this thing. How do I know? Just call it a feeling, or call it the cock roach theory.

    What’s worse, the SIPC has less capital reserves than the FSLIC had when it went bad.

    http://www.sandiegopredatorylending.com/?p=30

    So know what’s on (or what should/will be on) your broker’s balance sheet.

  3. Steve commented on Dec 10

    I have far more confidence in Annaly Capital CEO Mike Farrell’s numbers than those contained in the WSJ article and graphic:

    “The Resolution Trust Corporation, cost the US economy approximately $400 billion, which was equal to nearly 6% of Gross Domestic Product…Fast-forward to the 21st century, we would submit the following statistics. The mortgage market is an $11 trillion dollar market. Over the past several years the market expanded dramatically into sub-prime, alternative A loans going from almost nothing to the point where sub-prime and Alt-A securitized mortgages total $1.9 trillion. Effectively, just for this segment of the market, availability of credit has been shut off by the capital markets and, indeed, is now suspected by regulatory bodies of being a predatory lending practice. Therefore, there are no products available for these borrowers, even if they CAN and HAVE performed on their loans. The existinginventory of homes for sale is already at a nine month clearing rate, and there are more than 5 million homes for sale. More math: 5 million multiplied by $250,000 equals $1.2 trillion of inventory to be moved. Based on these numbers, we would submit that the size of the entire problem is in the neighborhood of $2 trillion, or equal to about 15% of current GDP. Even if we are wrong by 50%, it is 7.5% of GDP, still larger relative to the economy than it was in the early 1990’s.”

    -Annaly Capital News & Views, 10/30/07

  4. FairEconomist commented on Dec 10

    That would be good – if nothing besides subprime had problems. Unfortunately, subprime is only about half the problem. We have big losses coming from home equity, piggyback loans, neg-ams, and areas which will crash so hard even old-fashioned 20% down prime mortgages. Also, the upcoming house price falls will strip many homeowners of equity and further losses would fall onto the banks and investors.

  5. Walker commented on Dec 10

    We are still in the first half of this thing.

    Half? Try quarter. We aren’t even at the peak of the subprime wave, and the option ARM wave has yet to hit.

  6. Ken commented on Dec 10

    Quarter, right. Sorry dude, my bad…

  7. Hal commented on Dec 10

    I have an acquaintance in the auto dealer business–a “mega” dealer–who is not making money on selling new cars–but making lots of money selling inflated priced used cars and the financing on those cars.

    Rates of 20-24% etc. (our common friends and i like to talk behind his back because on the other hand he is a liberal who wants to see the “poor” taken care of on healthcare, etc-while he is screwing them on the auto loans)

    anyway–when all these folks stop paying their hi rate loans on overpriced used cars-something I think is rather common-we will hear more about subprime auto loans.

    Perhaps Paulsen can do a bailout on this?

    Then we will see the credit card default (with higher rates than the expensive auto loans).

  8. troy_toy commented on Dec 10

    I’d like to see that WSJ chart with inflation-adjusted amounts – or do the %GDP numbers mean more in this case?

  9. Tom B commented on Dec 10

    “I’d like to see that WSJ chart with inflation-adjusted amounts – or do the %GDP numbers mean more in this case?”

    I was wondering about that myself. I’m personally crossing my fingers and hoping this doens’t turn out to be as big as the tech crash of 2000. But, given the level of corruption in the White House……

  10. peter from oz commented on Dec 10

    “To the wholly uninformed”
    Michael welcome to Rupert World
    and the new WSJ
    BTW you’ve got to wonder how much due diligence these sovereign funds are doing
    why are they the only ones who can get a a handle on the risk or is it marquee name snow blindness
    similarly 1bb from Warburg Pincus into a potential abyss like MBIA?
    rgds pcm

  11. Dr. Evil commented on Dec 10

    >> It’s bigger than $450 million

    Why lose “millions” when you can lose “billions”?

    Bwahahahahaha!

    [Petting cat.] Isn’t that right, Mr. Bigglesworth?

  12. michael schumacher commented on Dec 10

    We would’nt let CNOOC buy Chevron or the Arabs buy into running our ports but selling our financial backbone out to anyone with a few bucks is just fine. Actually I’m at the point where I say good riddance as they are about as truthful as the people who are buying into them- if you did’nt believe what they spout before I can’t imagine what we will be fed in the future (images of baghdad bob would be appropriate here)

    We now have two deals that reflect “price discovery” into the locked up MBS market (one at .27 and today’s at .45) that’s an avg. of .36 on the dollar and the banking industry STILL calls them “one-offs”

    This will backfire enormously…….

    I think the banks are just trying to get to 01/01/08 with a shred of what used to be called a balance sheet. Whole new year to hide, deceive and generally make up more crap to feed us.

    I’m done trading for the year…….better things to do than watch the slow destruction of our country under the guise of bailouts and helicopter attacks (repo’s)

    Ciao
    MS

  13. Al Czervik commented on Dec 10

    Just a guess but I bet that poor Japanese guy under the tarp wasn’t an investment banker or a politician. At least they gave out tarps. If it gets that bad here, don’t even expect a tarp. Unless maybe Chavez sends us some.

  14. peter from oz commented on Dec 10

    BTW
    does anybody out there have an RSS feed to My Yahoo for The Big Picture?
    If so please provide
    no luck with directories etc
    rgds pcm

  15. wunsacon commented on Dec 10

    >> he is a liberal who wants to see the “poor” taken care of on healthcare, etc-while he is screwing them on the auto loans

    Maybe:
    – He’s a consequentialist. If the activity isn’t outlawed, someone else will take his place. So, why should he make a personal sacrifice (a drop in income) if it’s not going to make a difference anyway? What’s the point of him sacrificing if no one else will?
    – He’s willing to pay extra taxes personally for that healthcare. He’s not asking other people to do it and him not to.

    Just the same, I think less of people in the business of overcharging.

  16. wunsacon commented on Dec 10

    >> I’d like to see that WSJ chart with inflation-adjusted amounts – or do the %GDP numbers mean more in this case?
    >> Posted by: troy_toy | Dec 10, 2007
    >> 12:29:02 PM

    Since no one can agree on the inflation rate, %-of-GDP is probably better.

    >> Just a guess but I bet …
    >> Posted by: Al Czervik | Dec 10, 2007
    >> 1:05:14 PM

    Sad but true.

  17. donna commented on Dec 10

    I think it’s a bigger problem because of all the secondary investments based on the subprime loans. It is the hedge funds collapsing that will destroy the whole financial system house of cards….

  18. Eric Davis commented on Dec 10

    if you use established inflation figures, (unlike mine where I could buy a candy bar for .25 in 87) Roughly(I did this months ago) you have to double the 87 S&L numbers to get to a comparable event.. so 260 B. It’s still sketchy math, Also total derivatives are 600 Trillion, once we get into prime mortgages. (if you use my candy bar method we may have to get to 520 Billion in today’s dollars)

    Truth is we will see. I like that we keep drawing parallels to Japan, The world is finding they can live without Japan, and it may be our turn.

  19. passerby commented on Dec 10

    The stat seems like just for subprime. Home price depreciation will also affect Alt-A’s and Prime mortgages, a vastly larger universe. I’ve seen figures as high as $2 trillion menioned for the residential mortgage market as a whole (not including commercial and consumer debt). It would be nice if losses can be neatly isolated like the WSJ article.

  20. passerby commented on Dec 10

    I agree with an earlier poster about the questionable direction of WSJ journalism, circa-Murdoch. FT, Handelsblatt, et al. seem more objective about most matters nowadays.

  21. troy_toy commented on Dec 10

    – Since no one can agree on the inflation rate, %-of-GDP is probably better. –

    Thank you, I figured that would be more meaningful.

    My next question is whether we could try to
    “guesstimate” where the bottom is on the real estate market by going back a decade and extrapolating pricing out from there (before we were on the bubble), and figure that things will revert to normalcy around there.

    Of course, with a huge inventory surplus and recession could we also expect to see an *over*correction?

    In my neighborhood I saw two homes go into foreclosure, across the street from each other – both hit hard at our house because our kids were best friends …

  22. Tom B commented on Dec 10

    “Truth is we will see. I like that we keep drawing parallels to Japan, The world is finding they can live without Japan, and it may be our turn.”

    I am surprised at how long Japan has been down in the dumps. It’s been well over a decade. I would have expected they’d be buying baseball teams again by now.

    “In my neighborhood I saw two homes go into foreclosure”

    It keeps me up at night. I have an ARM with 2 years left– not a “toxic” one; it’s got a maximum cap. But, with jobs so uncertain these days…

  23. troy_toy commented on Dec 10

    Hear, hear.

    My wife and I are very, very fortunate to still be in our home – we literally were down to our last unemployment check with no savings left when I got a new job and have been doing OK since then … we’re now looking carefully to see if we can refi our home from a 30-year (with 23 left) down to a 15- with similar payments at the current rates (which are 2.0% lower than we’re paying). We could save $100K in interest over the life of the (shorter) mortgage if we can get the best rate.

    And no way, no how are we “pulling equity out” when we do it, either.

  24. ken h commented on Dec 10

    That’s great Troy that you found a job! Great idea on going to a 15 but just plan ahead in case another problem comes up. I did the same about 6 years ago and never looked back. We actually still put a little extra towards the principal. Going to try and pay it off in about 7 more years. We bought in 98 so I don’t think we will get a massive rebound past what we paid but….I still wonder if I shouldn’t have sold last year at the peak and rented?

    Ha Ha, CW called us twice a day for a couple years trying to get us out of our equity. It has kind of quit since …oh…about August:)

    good Luck

  25. Hank commented on Dec 11

    I just checked the housing numbers for the old family zip code in SW Virginia — 3000 owner-occupied, 1500 rented, 750 vacant.

    Overbuild much?

  26. doug commented on Dec 11

    what’s the percentage when we, first, make ‘gdp’ real? and, second, take the more realistic estimates of losses instead of the ‘official’ underestimates?

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