Really awful numbers

The New York Times has been crunching some numbers from the subprime/housing/credit meltdown.  The resulting article begins with what might well turn out to be the ephitaph of the coming recession:

Every time economists and Wall Street executives think they have acknowledged the full extent of the losses from the meltdown in real estate mortgages, more bad news turns up.

After a brief recitation of Merrill Lynch's worse-than-expected mortgage-related writedowns and the awful existing-home sales figures, we get to the really cheerful news:

At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.

That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector. The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.

That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value.

Experts caution that these estimates are preliminary and the total costs could get bigger still. They also note that the loss of real estate wealth could prove more damaging for the general public than falling stock values because more American families own homes than own stock.

It's more than that.  It was mostly paper gains that disappeared in the Nascrash; the only real-world consequence for many people was a thinner retirement account.  And yes, it's paper gains that are disappearing in the collapse of the housing bubble too… but in this instance, people used those paper gains to amass further debt.  The paper gains are vanishing, but the debt remains.

Want some more scary numbers?

Global Insight, a research firm, predicts that the national average for housing prices will drop 5 percent over the next year and 10 percent before mid-2009, for a total of about $2 trillion. Economists at Goldman Sachs have predicted prices will drop by 15 percent, meaning an overall decline of more than $3 trillion; other forecasters have said the decline could be 20 percent or more.

More and more, the evidence piles up… The tsunami's second wave is about to crash down.

The Daily Reckoning