On Aug 28, 2007, at 5:18 PM, Sabri Oncu wrote:
1) The size of the sub-prime market is between $2 and $3 trillions: this is a lot by any standard.
Where's that from? The total mortgage liability of U.S. households was $9.8 trillion in the first quarter of 2007; if subprime is around 15%, then that would be $1.5 trillion. And 3% of that is $45 billion.
2) Suppose for a while that the default rate in the sub-prime mortgage market is 3%. Only this amounts to defaults of $60 to $90 billions, which is again a lot by any standard: this is at the same order with the amount of foreign money invested in Turkish Stocks and Bonds.
Whether it's $45b, or $60b, or $90b, it's a lot of money, but still a pretty small fraction of overall mortgage debt. If it stays at these levels, it's a problem but not a disaster. Obviously if the default rate rises or the problems spread up into Alt-A and prime, then it moves closer to disaster.
