The coming trillion dollar debt meltdown

The next time you are trying to impress your friends by telling them how much bad debt America's banks are choking on (It's $400 billion, I tell you!), you can trot out this new estimate: $1 trillion. Yes, that's trillion with a "t." A thousand billion, if you prefer.

Bloomberg News: "Yes,  $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, 'The Trillion Dollar Meltdown.' That calculation assumes an orderly unwinding, which he doesn't expect.

More: "'The sad truth,'' he writes, 'is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.''

Where is Carl Sagan when you really need him?

Thoughts? Comments? Email story tips to peter.viles@latimes.com.
Photo Credit: Amazon.com

Comments

[JohnnyB]

The overall housing debt bubble is more like 3 TRILLION.

...just like the overall cost of the war, btw.

That makes Dubya the 6 trillion dollar man.

That's Steve Auston filtered through Wall Street's derivitive debt machine.

People have lost all sense of VALUE, along with their values.

[ckim]

In my little neighborhood in Canoga Park there are so far about 7 homes that are either short sales or foreclosures. On each one of them the bank will be losing at least $150k.
The area is DeSoto to Variel, Saticoy to Roscoe, so in that little radius that's over a million dollars. Ouch!

[brettdl]

Considering there are $45 trillion in swaps out there, I wonder if Morris is lowballing here.

Also, does he take into account Europe?

[CD]

Still the conversation in the media is not a serious one.
We should have Nouriel Roubini on the news every day.
His scenario is unfolding quite nicely true to the cent, so if you really want to know what will happen next read his newsletter. The landing, or lets say at this point the crash will be devastating. I am not impressed by neither political side, on their reaction, on their advise, on their vision. We need some hard core reality check here and some sort of plan. Well, all of us need to make a plan on how to survive this crash. There will be no help for the ones who saved and saved, they will find themselves with their dollar worth nothing and half the money on their retirement plan due to stock devaluation. Do not trust Wall Street, they are lying.

[jaded]

a trillion here, a trillion for the war...pretty soon it adds up.

[MyLessThanPrimeBeef]

Bear Stearns had some $13 billion plus total (derivatives) positions before it got bailed out.

I can only assume they mostly involved credit or credit insurance swaps, as I suspected then, because nothing packs as much destructive power except quasars or exploding supernovas.

Now, throw in the other Level III assets of other Wall Street firms, which by the way, are so deadly, according to Center for Disease Control and Prevention, that Level 5 Biosafety protocols are required to handle them, and one realizes just how much danger these evil, greedy geniuses who created these terrorizing mass weapons of wealth destruction (MWWD) pose to all hostaged Americans.

[blackbox]

I'll see you trillion, and raise you a Euro!

[bode]

Oh wow, between this post and the PIMCO one earlier, does this mean that even Peter is finally admitting this isn't only about a housing bubble? I mean, credit crisis, what's that? I thought this whole thing was just about NINJA loans, no-money-down flippers terrorizing the fine citizens in the valley, and Mozillo and JPM getting a golden parachute from the Fed?

Anyway, the sooner we remove emotion from the debate, the better off we'll be. Like an earlier post said, this is serious and if we're not careful our entire economy will be hosed just in time for the boomers to retire and cash out their 401(k)s. Certainly a great time to have a Japan-style recession, eh?

Seriously, this is as political as it gets, and that means our government will be working hard on the problem. Emotional outbursts like stopthebailout.com drive page hits and might help Sam Zell pay off his debt, but they don't accomplish anything else. I urge Peter to raise the level of dialog on this blog. It's in the emotional gutter right now. I don't agree with Roubini, but at least he's an expert. No one else in this forum seems to have demonstrated expertise in anything but frothing at the mouth.

[loveMEsomeME]

Wait did I see Johnny B try to tie Bush to this. Yes he made people stupid and want to overpay and take out foolish loans. What is next... Oh I know Bush started Polio and Aids too. And he caused the World Series earthquake, and rise of communism. People there is enough to be frustrated with our current government without blaming Bush for something he actually didn't do. AND PLEASE STOP BRINGING THE WAR UP on a real estate blog. Can't we all just get along.

[Dean Plassaras]

The true nature of the problem is more pronounced than the author indicates. We will have a more precise definition in the months to come.

[Snitch]

Everything starts with Morgan Stanley, you will find all your answers if you investigate Morgan Stanley. That is where the devil is hiding.

[Two Dogs]

Anybody want to have the FEDs manage the bailout? The mainland Chinese want their money back or they are sending melamine added to everything they sell here until we give it back w/the unpaid interest.
Trillion? Can this be the lowball "get comfy" offer? Like, if they buy this, maybe we'll try in $250mil increments?
43 mil taxpayers divided into $700,000,000,000,000, my Casio don't go that far. How many million a' piece do we owe? 17 mil. sleep tight tonite.