“And I am still confused about this 6% of sub-prime mortgages translating into a meltdown of global credit markets.”

I work in mortgage bond trading. First off, I’ve heard #s like 11% but even if it is 6%, the total mortgage market is something like $11 trillion – 6% of 11 trillion is still a big number.

Second, it is not only subprime mortgages that are causing a problem, but alt-A mortgages which are made to borrowers who are in between subprime and prime (but most of them didn’t provide documentation for their income and lied on their applications, so they’re generally thought to be a lot closer to subprime than prime). Alt-A is probably another $1 trillion or so.

Third, forget the $11 trillion size quoted above. Around 2002 I helped create the credit derivative market for MBS (although it didn’t really take off in huge size until 2004). With the credit derivative market (which nobody knows the size of) there is literally no size limit to the mortgage market.

So it’s really not all that insane.