Interest Rate Roundup

Monday, November 12, 2007

$52 billion? $75 billion? Do I hear $400 billion?

Watching the loss estimates for the mortgage debacle is a little like watching a live auction. Analysts keep raising their paddles, and shouting out higher and higher numbers -- like they're bidding for a prized Picasso. Or maybe the more appropriate image is a foreclosure auction for Inland Empire homes.

Anyway, Credit Suisse published a July estimate of $52 billion. That was its projection of total write-downs related to the subprime mess. Pimco was a bit more aggressive in the spring -- $75 billion. Then a few days ago, Lehman Brothers put the price tag at $250 billion. And this morning, Deutsche Bank said a total hit of $300 billion to $400 billion is more realistic. That estimate includes write-downs that banks and brokers will take, as well as losses that investors in mortgage-related securities will eat.

Now do you see why I've been saying for so long that this downturn will ultimately prove to be the biggest housing and mortgage market bust in decades?

Meanwhile, it's worth noting that banks are trying to make progress on the Super-SIV/M-LEC plan (let's be honest, by the way ... it's a bailout program). The New York Times reported on some positive developments, from Wall Street's perspective, over the weekend. Click here for the full story. Personally, I like the image of top bankers celebrating with 12 packs of Bud Light. I'm guessing that similar high-level meetings among the elite of the global banking world in the spring would have been celebrated with bottles of Cristal. Boy how times change.


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