$500 billion in losses for financial markets?

It may well be more than that. Welcome to the collapse of the worldwide credit bubble.

Losses of the order of $500 billion are actually quite reasonable and likely once you account for all the losses from subprime, near-prime, prime mortgages, CDOs, CLOs, failed LBOs, auto loans, credit cards and other consumer credit, commercial real estate loans, a variety of asset backed securities, level 3 asset value recognition at market values, and other financial market losses.

What? You didn’t know your mortage, car loan, and credit card debt was packaged into bundles with other debt, then sold and re-sold, with ever more complex and precarious debt instruments as the result? Someone was getting rich off your debt, that’s for sure, with the emphasis now on “was.”

Subprime alone is now estimated to lead to losses as high as $238 billion based on a mark to market analysis.

Mark to market means the price is set like stock or bond price, on whatever the going price is. The problem is, this glop is so toxic, no one can even figure out a price for it. Plus, the holders of the glop are trying all manner of ploys to keep it off their books so they don’t have to recognize it on their financial statements.

Meanwhile, The NY Attorney General has subpoenaed Fannie Mae and Freddie Mac over a fraudulent appraisals investigation involving Washington Mutual, among others. It won’t be long, I’m guessing, until the criminal indictments start coming. Shades of Enron.

If Washington Mutual has to buy back those loans from Fannie Mae [because of fraudulent appraisals] , the patient will die. It’s as simple as that.

  • DJ

    My neighborhood bank, which keeps and services its own mortgages and credit cards, kind of makes me feel warm and fuzzy!

  • The Prudential apparently took the same backwards, antiquated view. Their CEO, says Cramer, hates risks, and the company never bought any of the now-toxic glop. Clearly, their CEO is a quaint anachronism.

    Oh wait, Pru is still solvent, isn’t it? I bet your bank is too.

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