LA_Renter: Don’t think you are. Wrong, that is. While someone of us are perceived as being overly bearish, the sobering words from a variety of sources, including Bear Stearns, would indicate that we are in for a bumpy ride.
I think the worst is yet to happen, especially when the valuation models used for CDOs, CDSs and other derivative instruments are tested in the real world. Leverage is averaging somewhere between 10x and 20x, and paraphrasing the old saying: “Leverage in reverse is a female dog”.
One thing that really strikes me when people compare this bust to the one endured during the 1990s is that the median price for a home now is probably three times higher than back then. A much greater distance to fall, especially when you have little to no equity cushion. The banks carrying these loans are going to get hit very hard when they begin the process of clearing their REO portfolios.
