On Mar 24, 2008, at 5:50 AM, soula avramidis wrote:
Is this true
Mortgage-backed securities in circulation total $11,000 billion. US
real estate is overvalued by 20 to 30 percent. If a quarter of the
wealth of US households vaporizes, that represents $2,750 billion
worth of debt that will probably not be repaid and will become
losses for the financial system.
Of that $11 trillion most is not "subprime." So the question is how
much equity underlies that $11 trillion, certainly not as little as
100%! And so the potential writedown has to be much less than that
$1.375 trillion.
According to the study by Greenlaw, Hatzius, Kashyap and Shin (pdf),
the total capitalization of United States' banks, government
agencies and savings banks amounts to $1,681 billion.
Their direct exposure to mortgage securities totals $5,591 billion,
or half of the outstanding amount. They are, consequently,
potentially faced with write-downs of up to $1,375 billion - close
to their total capital.
Shane Mage
"Thunderbolt steers all things...it consents and does not consent to
be called Zeus."
Herakleitos of Ephesos
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