We Have a Sub Prime Financial System, not a Sub Prime Mortgage Market

If you want to scare the total financial shit out of yourself, go to the NYT piece HERE. Not written by some nut but by one of the most respected banking and economic people everywhere. He's been correct for more than a year and he says that this thing is far from over. From the NYT piece:

Look for more bank failures, he sees the choice facing the United States as stark but simple: either the government backs up a trillion-plus dollars' worth of high-risk mortgages (in exchange for the lenders' agreement to reduce monthly mortgage payments), or the banks and other institutions holding those mortgages — or the complex securities derived from them — go under. "You either nationalize the banks or you nationalize the mortgages," he said. "Otherwise, they're all toast."

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars.

To paraphrase the late great Everett Dirksen, a Senator from IL: "A trillion here and a trillion there and pretty soon you're talking about serious money." Always keep in mind that our debt has been financed by our enemies, not our friends, and all of them would love to see us fall. credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

(hat tip: lots of blogs today)