Saturday, April 12

The Trillion Dollar Write-off

So the US housing bubble might result in up to $1 trillion in write-offs. That's pretty amazing:
The International Monetary Fund said Tuesday that financial losses stemming from the U.S. mortgage crisis might approach $1 trillion, citing a "collective failure" to predict the breadth of the crisis.

Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said. - IHT
To put it that amount in perspective (and using the population totals below), that comes out to $3,291 for every American or $150 for every person on the planet.

I would think that a good portion of the trillion written off will eventually turn into profits for someone given that some mortgage 'assets' are being 'marked to market' reducing the value to near nothing. That of course is not accurate as the properties do have value. Just not the value they were given by a huge number of greater fools.
The bigger fool theory or greater fool theory (also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a bigger fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to some one else for an even higher price. - Wikipedia
There were lots of voices out there warning that housing was in a bubble, but no, everyone else had to shout them down. My favorite comment I heard when the bubble really started to deflate was that it was the people shouting 'housing bubble' who brought about the decline. What a load of bull. All that was needed was a little simple math for these people to see that the houses they were buying were not affordable.


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