In the early 1990’s, I worked through the RTC cleanup as an analyst on a mortgage bond trading desk, whole loan securitization, pouring over pools of mortgages, working with underwriters, analyzing characteristics of the underlying debt instruments so as to optimize the return on the securitization process for the bank.
The quality of debt in circulation now is easily 3-5 times worse, and I suspect that’s a conservative estimate. If total losses end up in the range of $1-2T, I believe that puts us about 30% of the way through the write-downs. Many more failures on the way, major institutions beyond Bear and IndyMac.
Also, I would suggest that the impact of today’s crisis has spread far beyond subprime and the secondary mortgage market. The larger market for credit has become extremely tight, which exerts further downward pressure on the economy just as we are entering into a fairly serious business cycle correction / contraction.
On top of this, we’re going to have to cut spending at the state and local levels — again, just as we’re entering into a contraction. The federal side is in a bind as well, walking the monetary tightrope between stagant growth and inflation. Things are precarious right now, and I’m quite concerned.
