The savings and loan bailout was petty cash compared to today’s crisis
There are at least $450 trillion dollars worth of derivatives floating around the planet right now – some portion of this paper mountain is currently shaking and bankers and politicians are running scared as a result
We are currently only hearing about the $20 trillion dollars worth of derivatives written on top of mortgage debt (MBS, CDOs, etc) – we don’t know if the fear being displayed by our ‘leaders’ is only caused by the $20 trillion or if they are reacting to something bigger that we aren’t aware of yet
All of the same financial games were played with derivatives written against auto loans and credit card debt and who knows what else – some analysts think we will start hearing about the collapse of derivatives based on auto loans and credit card debt very soon since late payments and defaults are increasing with both those categories of debt – perhaps we will have a freeze on credit card payments and a moratorium on auto repossessions in 2008?
Ultimately, this whole $450+ trillion mountain of derivatives will have to be marked down to some value that is much, much lower than today – 20 to 30 cents on the dollar seems to be the current value of an MBS – the next few years are certain to be interesting
