The number of option arms that are going to default is largely irrelevant at this point. The fact that defaults of all flavors are going to be coming fast a furious for the foreseeable future is obvious. Unemployment is starting to drive this now and that should not subside in 2009. It’s becoming self-reinforcing at this point.
With reports of 25% of all small businesses going down, 40% of small and medium sized biotech companies, state and local governments shedding jobs, big multi-nationals lowering salaries of the white collar, Retail closings in the 10s of thousands, all happening in 2009(that’s just off the top of my head), means the taxpayer is going to be paying for bad banker bets for quite sometime and downward pressure on house prices will not subside anytime soon.
The bigger problem at this point is the commitment of the USG to buy all troubled assets. This went a past an economic crises straight to political and social when that happened.
