I'll Say It Again

Subprime borrowers are likely to default on 30 percent to 40 percent of debt, Mayo wrote. Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo wrote. The forecasts on total writedowns are based on ``seat-of-the- pants'' estimates using losses announced by the biggest securities firms, he said.

Banks and brokers may have to write off $60 billion to $70 billion this year, Mayo wrote. The estimate is based on known charges of $43 billion and expected additional losses of $25 billion. The report didn't include writedowns at Frankfurt-based Deutsche Bank, which were 2.16 billion euros ($3.15 billion) in the third quarter.

These guys are still denying it. Yes, sub-prime loans are 12% of the $10 trillion in outstanding mortgage debt. But what percentage of the other 88% of debt is held by real estate investors, who had little equity at the market peak, and are now upside down? Or rational homeowners of means who can do the same math?

These landowners, who owe $250,000 on an asset now worth $160,000, and are paying taxes on top of it, owe nothing to the bank. Many will walk away. And the bank will be holding the bag. The supply-demand imbalance is still pretty wide.

The banks also financed many speculative land projects, which they now own and are worth pennies on the dollar.

I put the total loss of real estate wealth at $7 trillion, with the banks holding around $3 trillion of that loss.