For about a year, we have been predicting an overall banking loss of $3 trillion on the housing market (30% of $10 trillion in mortgages). This number has been sliced and diced since (costs beyond the reduction in home value, actually initial number was $12 trillion, etc.), but the $3 trillion number still makes sense to me.
Lets look at the checkbook so far:
Paulson’s newest plan to buy up bad debt is $1 trillion; plus
A (stated) price tag for Freddie-Fannie of $200 billion; plus
$85 billion for AIG; plus
80% of AIG’s insurance exposure; plus
$120 billion in freshly minted cash; plus
All the previous freshly minted cash ($300 billion?*); plus
God knows what else
So the checkbook says $1.7 trillion plus AIG insurance exposure plus the real Freddie-Fannie exposure plus whatever else.
Brick Oven sticks with the $3 trillion estimate. Perhaps the future history books will be truthful and we can honestly assess our estimates.
* p.s. An evening newscast put this number at $500 billion.