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From http://drhousingbubble.blogspot.com
If we have mean reversion to 2001, this chart implies $4.5T of (2005 and older) debt (and house value) going underwater (defined as collateral being worth less than debt).
Mean reversion to 2003 would still mean $2.7T of (2005 and older) debt going underwater.
Obviously going underwater doesn't mean a total loss, but even 10% losses to banks owning the debt would have an effect very similar to a nuclear bomb in the vault.
To put this in perspective, the S & L crisis a la 1986-1995:
FSLIC: 296 failed S & Ls, $125B assets
RTC: 747 failed S & Ls, $394B assets
Total losses covered by RTC: $91.3B
Source: http://www.fdic.gov/bank/analytical/.../brv13n2_2.pdf
$91.3B in 1993 dollars is equal to something like $131B in 2007 dollars according to BLS.gov - this would be higher according to Shadowstats CPI info.
Of course, 10% foreclosures on $4.5T or $2.7T worth of loans is not the same as an outright loss.
But then again, after the S & L scandal, there was a 50% decline in the number of such institutions.
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Mean reversion to 2003 would still mean $2.7T of (2005 and older) debt going underwater.
Obviously going underwater doesn't mean a total loss, but even 10% losses to banks owning the debt would have an effect very similar to a nuclear bomb in the vault.
To put this in perspective, the S & L crisis a la 1986-1995:
FSLIC: 296 failed S & Ls, $125B assets
RTC: 747 failed S & Ls, $394B assets
Total losses covered by RTC: $91.3B
Source: http://www.fdic.gov/bank/analytical/.../brv13n2_2.pdf
$91.3B in 1993 dollars is equal to something like $131B in 2007 dollars according to BLS.gov - this would be higher according to Shadowstats CPI info.
Of course, 10% foreclosures on $4.5T or $2.7T worth of loans is not the same as an outright loss.
But then again, after the S & L scandal, there was a 50% decline in the number of such institutions.