baji kimran

The Worst Is Over ... Again ... And Again ...

Just doing some back of the envelope calculations here.

2 million subprime loans at an average of 300,000 / loan yields a total of 600 billion dollars at risk. (Maybe 2 million is a little low given a annual housing sale rate of 5 to 6 million.)

For estimating purposes here say the mortgage holders suffer a 33% drop in the value of property. Mortgage holders forced to sell the property at 200,000. Total loss = 200 billion dollars. Even if there were 4 million subprime loans (which could be reasonable) the total loss = 400 billion dollars.

However, the only way I can stretch to 1 trillion dollars is to take into consideration all mortgages, not just subprime. So to say that the subprime mortgage crisis will cause 1 trillion in losses is a wild overestimation.

However I could see that the housing bubble (not just subprime mortgages) could cause a loss of 1 trillion. Not catastrophic given there are 100 million households.