“The Greatest Price Decline in Housing since the Great Depression”
4plex: 1998 prices here we come!!!
“Derivatives numbers are staggering. The Bank for International Settlements estimates that the notional amount of derivatives traded on regulated exchanges topped a quadrillion dollars last year and that the outstanding unregulated off-exchange (called over-the-counter – OTC) amount stood at $370 trillion in June 2006. Because the OTC market is composed of endless strings of bilateral transactions – the systemic risk is unknown.”
4plex: The global economy does about $40 trillion in real business every year but we have a “derivatives economy” that is $1,370 trillion in notional size – ie, the amount of derivatives is 34 times the size of the annual global economy – can you say, “Golly, gee, Beev, that’s a lot of leverage – isn’t there some risk?”
“In fact, a recent survey showed that only 1 in 7 Americans believe that house prices will go down. Even now, very few people grasp the underlying issues or the potential for disaster. We’re on a treadmill to oblivion and they think it’s a merry-go-round.”
4plex: I love that quote! “treadmill to oblivion and they think it’s a merry-go-round” – at least here in San Diego they get to enjoy the gorgeous weather while they slave away on the treadmill
“None of the bailout plans are large enough to make any quantifiable difference. The numbers are just too big.”
4plex: Yes, I agree wholeheartedly. And even if the bailout numbers were bigger, Mish (http://globaleconomicanalysis.blogspot.com/) made an excellent point recently about the fatal flaw in ALL the bailout plans. That flaw is this: all the bailouts keep the FB in the house AT THE HOUSE’S INFLATED VALUE. Let’s say I’m an FB and I get bailed out so I can continue to service my $400K in mortgage debt on the house I bought for $360K and then used like a piggy-bank. A year or two passes and houses like mine are now selling for $285K. That bailout isn’t seeming like such a great deal now – I’ll be working for the rest of my life paying for this albatross – they must think I’m stupid – should I mail the keys or just leave them on the kitchen counter?
