How Bad Can It (the Subprime Meltdown) Get?

December 14, 2007

Banking, mortgage, capital markets and other industry participants are comparing the current “subprime” mortgage market meltdown to the U.S. Savings and Loan crises whose roots were caused by archaic deposit and loan regulations and nurtured under the Reagan administration’s hands off regulatory watch in the early 1980s. This latter crises cost the U.S. taxpayer over $125 billion by the time the bailout was authorized in 1991. How long will the current crisis last? Who are the losers this time? What will happen to the mortgage market? Will political initiatives from the Bush administration or Congress make a difference?

Scarcely a day goes by without another dose of bad news from a large financial institution. Just about all the big names have bitten the bullet and admitted to higher loan loss provisions and/or writing down the value of mortgage backed securities. In spite of the staggering amounts, upwards of $10 billion/institution in some cases, it can get worse.

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