From MarketWatch on JP Morgan WaMu takeover yesterday.

“In a presentation on its WaMu acquisition, J.P. Morgan forecast a 58% peak-to-trough slump in California home prices if the U.S. enters a severe recession. In Florida, house prices could fall 64% in such a scenario, while nationwide prices could drop 37%, the bank said. “

Funny how when banks become buyers of c$ap, their numbers get more realistic. If OC fares better than the rest of California we should expect about a 50% drop locally.

http://www.marketwatch.com/news/story/jp-morgans-wamu-deal-sparks/story.aspx?guid={AEDF6391-5116-4CD7-88E4-ADAB31A67EF6}&dist=msr_10

none of those links seem to work…

How does one get ready for “The Great Depression”?

Really. It’s like getting ready for a car wreck at 55 mph.  You brace yourself and then get smashed. We’re all in the car, not just the “knife catchers”.

If this crummy economy does tank into a depression, then like the 30’s, people will want to escape from their problems now as they did then. 

Good luck with a book about the inflated housing market, if this tanks, who would want to be reminded? Seriously.

I hope we can have a short recession and expect a “lost decade” like Japan, a correction in asset value and financial imbalances without too much pain.

Actually, the ones after “What is a Bubble?” are working. I will go through the post and correct the others. Thanks for letting me know.

“I hope we can have a short recession and expect a “lost decade” like Japan, a correction in asset value and financial imbalances without too much pain.”

I hope you’re right joesez (probably not with all the bail outs coming to slow down the correction that needs to happen)...  But I fear that it will not be so painless. 

After the Great Depression America had little debt, it was on the gold standard, we had many sources of energy that we were ‘allowed’ to exploit, & we actually produced things people in other countries bought (not just software, pharm, & food).

My family hopes for the best & is attempting to prepare the best we can for the worst.

Too bad Irvine home prices aren’t reflecting the looming economic realities.  September closing prices continue to be flat with August:

http://www.ipoplaya.com/iposhiller.pdf

I repeat, we cannot sit around thinking our political leaders (oxymoron, sorry) - our representatives - will solve our problems.  They aren’t capable of it.  Period.  We have to take responsibility and take control of our society in any way we can.

Save American jobs - buy American goods.

Put some money in the bank.

Hold the people - the banks, the mortgage brokers AND the borrowers - accountable for this mess they got us into.  Maybe financially it doesn’t help much, but it does help psychologically, which is very important.

I don’t see how there wouldn’t be another exodus from CA as people seek areas where there are jobs and the cost of living is lower like Texas or NM.  Keep an eye on moving reports.  This will worsen CA’s budget deficit, more layoff’s in the public sector will have to occur and possible more cities declaring BK.

Not sure you can really read your data that way yet.

Prices of homes are very sticky on the way down and there is still a lot of time left before we hit bottom.  WaMu loss will take make mortgages more costly and harder to get.  Transaction volume will continue low.  Japan took 10 years to get to bottom.  Glacial slow is still moving.

Lets see where we are 6-12 months from now.

Ipoplaya,

I agree that we aren’t there yet but there are cracks developing. IR’s 12 Capistrano today is a good illustration. It sold for 840K in 2004 and easily peaked well over $1 million. Based on todays price (now $699K) we are seeing a 30-35% drop already. It’s not a stretch to imagine another 15-20% yet to go.

The only question is when and if it will overshoot even 50%. I think the brains at JP Morgan have a pretty good crystal ball.

I can’t see how OC is going to do ok, with such a large part of the economy in real esate and finance. Even tourism is hurting with high fuel costs. I saw the same magical exceptionalism in the early 90s.

Apologize in advance for the rant, but you logic is faulty.  If a Turtle Ridge McMansion gets listed at $800 per square foot tomorrow will you think that is what the market is too?  Surely, that would have to mean that the bottom has come and gone and RE is on fire again…

To be more simple and frank, list prices don’t mean $hit.  Closing prices tell where the market it…  I have no idea why 12 Capistrano would list so low, but I can guarantee you it is worth well over $700K in today’s market.

A house in the same neighborhood, an REO no less that was 700 less sf, closed a few weeks ago for $693K.  Oh, and it was listed at $665K I believe…  OMG, a house sold for over list, how is that possible?!?

http://www.ipoplaya.com/Listings/14 Amargosa, Irvine, CA 92602 $664,900 Northpark Real Estate.mht

Hell, I sold my 1600sf condo for over $600K and over list just a couple of months ago.  There is no way a newer 2600sf SFR has fallen to essentially the same price level over the past couple of months…

Irvine home prices have fallen 20-25% so far, not 30-35%.  That’s a fact based on closing prices, not whacky list prices tossed out on MLS by freak realtors and/or distressed sellers.

nefron you have an interesting suggestion here. I believe I heard somebody on talk radio recently talking about how if we believe in America we should invest in the stock market.

Is that along the lines of what you’re thinking?

I would be interested - in all sincerity - to hear why buying American will save America or why putting more money in the bank would improve things.

I think you’re saying that if we show confidence in America, we can reduce panic. Is that the idea?

Another approach would be to get out of the market and pull money from that bank. Would you consider that anti-American?

Congratulations on selling your 1600 sq. ft. condo for over $600k.

Perhaps you have a point. Maybe realtors are intentionally listing properties at absurd prices to get attention and then inducing bidding wars against prospective buyers to drive the price back up to “real” market value.

If so, 12 Capistrano would be a good property to test this theory since the owner has been chasing the market for the last 7 months and suddenly dropped the price to something enticing.

So, if the property closes above this list price of $699,000, I would have to say you called it.

If on the other hand, the property remains listed or the price is reduced further next month, that would suggest buyers are not buying even at these discounts (which would mean you and 14 Amargosa were lucky).

Perhaps you hit the fake bull rally just before buyer psychology went into despair.

I fully agree the closing price reflects the market, but I think you might be focusing on the exceptions rather than the norm.

IR, just remember, you asked:

I love irony: We are currently in a recession. Everybody knows it. Yet the official proclaimer, the National Bureau of Economic Research has yet to call it. I find it ironic the Calculated Risk blog been calling recession since last December and most people on the street can provide anecdotal evidence of recession yet the official government agency has apparently not made up its mind about the matter.

So we go about our daily lives suspecting times are not as good but not really thinking about it… or acting on it.

Many here witnessed the run up in home prices during the bubble, knew it to be unsustainable, and realized prices had no choice but to come back down to earth. Many have also agreed prices will over-correct running lower than fundamentals for a brief period due to buyer psychology (fear of being a knife-catcher).

I find it ironic, then, to hear (at least in the recent past) that while we are in a recession, and there is a chance of severe recession, it will not be a depression.

Psychologically, we simply do not want to consider such ideas. We cling to the idea that the government will do its thing, and then the economy will do its thing.

The media has widely reported over the last few years the economy has been driven by the American consumer. How many times have you discovered it was cheaper to buy two of the same item than one? How many “value-paks” have you purchased. Our economy has traditionally built upon expansion, but for the last 5-7 years our economy has actually been depending on it.

The American consumer was able to meet this demand and fuel the economy for the last few years using Mortgage Equity Withdrawal, Heloc Abuse, credit cards, and savings depletion, but just as houses can’t increase in value just because prices go up, our economy can’t continue to expand on borrowed money. Those days are over.

You might say, sure things are bad for real estate and for Wall Street, but my company is doing business just as it always has.

Now remember, all of those housing bulls kept saying “can’t happen here” and “all real estate is local” and “there’s no such thing as a national housing bubble” yet here we are.

If we’re willing to open our eyes and look around: lowest personal savings rate since the great depression; biggest decline in home prices since the great depression; highest number of foreclosures since the great depression;  T-bills yielding zero has not occurred since the great depression; non-banks borrowing from the Fed for the first time since the great depression;

The currently proposed bailout will be the largest economic intervention by the government since the great depression.

The depression is not coming. Like it or not, it’s here. To coin an ancient ad for Palmolive dish soap, we’re “actually soaking in it”.

Of course your company’s sector (unless the financial sector) is probably unaffected by all the commotion, your company probably seems sound, your job probably seems secure. But wasn’t there that group that recently got laid off?

Likewise, if you own a house you are probably not bothered by the equity-destroying comps of your neighbors, that is, until those comps completely wipe out your equity. Even then, it’s a paper loss unless… for some reason… you need to move.

The economic dominoes are falling. If we have learned anything in the last year, it’s that nothing is contained.

As you might guess, I’m an occasional reader of this blog and also CR (and that Nouriel Roubini guy). I don’t mean to be un-American or panic anybody by calling this a depression. If my claims above are not true, please correct me.

It’s fair to say we’ll know the housing market is getting better once the number of foreclosures subsides and starts to diminish. Likewise, we’ll know the current economic crisis is getting better once government bailouts start diminishing in size, but if you look at the numbers you can see we are currently heading in the wrong direction.

I would like nothing better than for all markets to regain confidence and work through this crisis, but again there is no foundation for this to happen. By it’s very nature a bailout should not inspire confidence, it should indicate system failure.

Just as the housing market can not bottom until prices reach fundamentals, our economy can not heal until its fundamentals are tested and found to be sound.

Great post! I can add to your post on one issue that Construction, Real Estate, and Financial unemployment is running over 40% today so we are in depression in these sectors and these sectors tie a lot or other dependent industries with it.

WaitingToBuyByAndBy, I agree with you. To add another point on what we are seeing about bank failures, its actually a planned demolition by FED to rid of small banks and accumulate the weapons of mass destruction (CDS) credit default swaps. Why the the four big banks getting bigger? The reason might be that these are the biggest banks with the most CDS exposure on their balance sheets.
JPM - $90 trillion
BAC - $38 trillion
C - $38 Trillion.
WB - $4.5 Trillion (next major bank to go under), possible buyer C?

Now it makes sense why BSC and WM was forced to JPM and why BAC tookover CFC.

Want to know why Warren Buffet has stake in WFC? Bacause WFC’s exposure is only $1.5 trillion.
See yourself here
http://bigpicture.typepad.com/comments/2008/08/us-bank-derivat.html
http://www.nakedcapitalism.com/2008/01/bank-reserves-now-negative.html

Current financial situation is very very bad, this $700 billion will not do squat! We need to preserve our capital in any way shape or form and not bury our cash into home purchase as there is no guarantee that we will have our jobs in next six months given the current condition of the entire USA

That is a fantastic post. I wish I had written it on the main blog.

On paper the bank losses are real.  But in reality the losses are minimal.  Let’s look at an example in the simplest case.  In the morning a bank has $1 billion in assets and $900 million in liabilities.  They are in fine shape with $100 million in equity.  Suppose that same bank has all of their assets a $1 billion CDO.  With mark to market rules they must mark that $1 billion CDO down to whatever the market value is - unfortunately no one is buy CDO’s so the value is far less than the true value - by the afternoon lets say the market value is $750 million.  Now the bank is in trouble.  They have $750 million in assets but $900 million in liabilities.  They are technically insolvent.  In the time span of a single day they went from solvent to insolvent.  The FDIC will take them over and they’re out of business.  Sound familiar.  But wait.  Let’s go back to the CDO.  Let’s say that 5% of the houses in that CDO are in foreclosure.  That would represent only $50 million of the $1 billion CDO.  Of the houses in foreclosure the bank will recoup at least 50% of their investment so they should lose only $25 million or 2.5% of the value of the CDO - not 25% as the market to market rule suggests.  If the foreclosure rate is 10% then perhaps worst case they’ll have to mark the value of the CDO down 5%.  Do you see the point?  With mark to market rules we are causing the banks and financial institutions to appear insolvent when truly the underlying assets will retain most of their value.  Just because no one will buy a CDO right now doesn’t mean the CDO is worthless.  In fact, housing prices are declining because of mark to market.  Mark to market rules are forcing financial institutions to mark down their assets and then sell them to raise capital But no one is buying the CDOs and so the price continues to sprial downward.  Financial institutions aren’t buying the discounted CDOs because they have their own requirements to raise capital on the CDOs they own which are being devalued.  As the CDO from one institution is devalued all the others must follow suit.  Because the CDO is devalued the underlying asset is being devalued by association.  It is a vicious cycle.  Changing the accounting rules from mark to market to a more sensible discounted cash flow model would solve many problems.  It would more accurately reflect the value of the underlying asset, it would stop the downward spiral problem and it would add liquidity to the credit market because financial institutions would no longer be required to sell distressed assets at hugely discounted prices to raise required capital.

Before the bailout thing, I was going to jump back into the mkt when the dow went below 10000.
Now, I’m thinking 9000.

We have a bit of cash in the house, a bit of precious metals, some extra canned goods.  Can’t hurt.

Any of those financial vehicles based on 2nd mtges are worth close to zero.

People are walking away more in South Florida, not less, and I’m assuming it’s the same there.

People are realizing that they will NEVER (never being a decade or 2) get back above water.

The only thing that would put a higher floor on things is allowing cramdowns.

Your analysis Charles B is ok now, but things are gonna get worse.

A 50% drop would correspond to the 100% rise of the last five years.

So, we’re back to where we started.

The US got out of the Great Depression only because of the perverse economic boost of WWII.

Be careful for what you wish…

Irvine will be overpriced for a long time, untill it becomes an older, louder city and then the ‘hype’ bubble bursts and people will move to the next place that has the ‘hype halo’ around it. I have been coming around to realize that a good school district is important but is not everything.
Cheers,
PH

In the long run the herd mentality will hurt the herd. I want to take courage in the fact that there are second and third options where I can get more bang for my buck and below Irvine standard school districts. One does not have to go to the best or the worst school districts. There is a second tier and then a lot depends on your child and how much you want to encourage him/her to succeed. Too much competition is not good either - it hurts children. We have seen how in their efforts to compete with each other big banks destroyed themselves in their greed.

Exceptions?  My tracking gets 30-40% of the Irvine closes and I use the median of those…  Since when is nearly half of a population an “exception” sample size?  Wasn’t that way in my stats class.

www.ipoplaya.com

No offense taken in the rant. You make good counterpoints as I know the average is 20-25%. If the economy heads toward reflation we may not see the 50% drop.

$699K for 12 Capistrano may not be high in today’s market. But my “faulty logic” tells me this one will not be high at $599K next year. The knifecatchers who bought your condo will be kicking themselves by then.

Woah… let’s not fall into generalizations.

Not everybody used their home equity to maintain a “lifestyle for the rich and famous”.

Just not like all of Irvine is like Turtle Ridge, Quail Hill or Northwood Pointe….

Come on, let’s get realistic.

“third options where I can get more bang for my buck and below Irvine standard school districts”

Yup, with the last kid a senior, houses like this in well established neighborhoods have me more interested (than over hyped Irvine).

http://www.redfin.com/CA/Tustin/14611-Canterbury-Ave-92780/home/4612981

I still think that the Irvine villages built in the last 8 years will drop 50% from the top. 

Take TRidge, for example. There are 3000 sq (or so) 4bd/3ba homes in TRock that are larger, have larger lots and views from Catalina to Northwood.  The homes may be 40 years old but they are very well maintained and in many cases have 3 car garages.

Now, my take is that your typical TRidge McMansion on a their very small lot has to drop BELOW those view homes in TRock for the market to make any sense at all.

Just because the builder decided to price them at WTF prices to begin with and the Fed kept the prime pumped by making money cheap, it doesn’t mean that TRidge has always been overpriced for no other reason than the bubble mania.

I won’t even consider Quail Hill and the rest of Irvine’s new villages… homes that were IMHO even wilder because they really don’t have as good a location as TRidge.

So, yep, perhaps you priced you condo just right and sold it to someone at the right moment.  Perhaps your condo was in one of the older villages which did not go price-nuts like the newer villages…  But a 50% drop on existing villages and perhaps a 65% drop on the newer villages would not surprise me.

I was talking to a neighbor of mine last week and he thinks that the market is getting to ‘03 prices.  I still think it’s more like ‘04 and the bottom will be like early 03.

You’re on the money there.

In fact, I wish the media would not call this “a bailout”.

What it’s about is putting a price on assets that are worthless because no one wants to BUY them, regardless of the net worth.

As you noted, not all of that stuff is junk.  For example, for all we know, our mortages, car loans, etc.. are in there somewhere and God knows we’re current on all our debt.

So, by putting a market price on those derivatives, the Fed pretty much allows the “mark to market” to function and will allow those firms to put a price, higher than worthless, on their books.

Nonetheless, my assumption being that the Fed will offer something like 30 cents on the dollar, those banks will take huge losses in exchange for the liquidity.  So this is no real bailout but a very bitter pill to take.

Long term, those assets might be resold.  Like Junk Bonds of yore, if properly priced that stuff might actually be a good long term investment.

The one thing that I am vigorously against is to renegotiate the underlaying mortgages.  That is insane.

The banks will be forced to take large losses, so should those people who were stupid enough to go along with the Ponzi scheme.

Otherwise I want our 6% fixed loan to go down to 3% or I’m walking out too.  There

In fact, that part of the deal, the renegotiation, will be something that congress will NOT be able to enforce.  The majority of americans are NOT in trouble.. all we need is for the banks to start working again.  If some clown up the hill decided to pay 900 bucks per square foot for a McMansion and pay a teaser rate of 1%, interest only, then that’s their problem.  I should not be forced to subsidize such an idiot.

New (final?) version of the bail out bill available.

Greater Fool theory still in effect.

I don’t see how there wouldn’t be another exodus from CA as people seek areas where there are jobs and the cost of living is lower like Texas or NM.  Keep an eye on moving reports.  This will worsen CA’s budget deficit, more layoff’s in the public sector will have to occur and possible more cities declaring BK.
sikiş, sıcak

Waiting, that is what I’m saying.  We can’t just sit around crying on each other’s shoulders and waiting to see if the bailouts work. 

I don’t care what complicated arguments experts come up with.  We, as the American public, collectively have an enormous amount of money.  Buying American goods whenever possible simply has to help the companies that make them.  It increases jobs.  It keeps money in our economy. 
We can influence our economy, right now, by taking that step.  Can you imagine the difference in our economy if the U.S. domestic market channeled some of its money back into its own companies?

Do I think it’s anti-American to withdraw my money from a U.S. Bank?  Not if I think that bank is going to fail and the FDIC can’t insure my deposits.  But we haven’t reached that state yet.  Put it in a bank that you know didn’t participate in this stupid, losing game.  Okay, maybe you’ll get a 1/4 of a point or something less, but hey, better safe than sorry.  I’d do that before I put it in a foreign bank.  Investing in foreign banks before good, solvent U.S. banks, for the sake of a couple of bucks - okay, maybe not anti-American, but frankly, I think, is short-sighted.

As for putting money in U.S. stocks and in the bank, I don’t advocate foolishness, but you simply can’t tell me that there are no U.S. companies that are worth investing in, and no U.S. banks that will remain solvent.  We need to do our homework, but if we invest our money in sound companies and banks, we are doing more than making a good investment for our own return.  We are investing in our society and in our futures, and in our children’s futures. 

All of us on this board knew this was going to happen.  IR, you were never alone.  Here and there, peppered across Irvine, Orange County and the U.S., there WERE people who knew what this crazy housing market, and unlimited creidt, and reliance on the financial services and contruction sectors were going to do to our economy.  We knew.  We just never found a voice or a way to put some brakes on it.  We need to learn a lesson from that.  We don’t let the responsible parties get away with it and we don’t sit quietly by again.  I say let’s do what we, as a large powerful market force, can do to clean up this mess and make sure the politicians hear just how angry we are.

....i think i got it all out of my system….

http://www.usa.gov/Contact/Elected.shtml

I was quite surprised when I looked at the Malibu sales statistics for the last 3 months on Redfin.  Most of the homes which sold were foreclosures.

Here are parts of an interesting article on the Malibu market, which is grinding to halt. 

“Thirty to 40 percent value decrease may be in the works….Compared to what price adjustments have been in the region, however, it appears listing prices have not changed nearly enough to compensate for the new realities of the market. Thus explained is why the total number of sales in Malibu this year, projected at about 90 homes out of 4,000 that exist will be, by far, the fewest in more than 30 years. The last two years the number of sales was about 175 each.

A similar phenomenon took place in the early ‘90s, but that down market was a slow burn. It took about five years for some homes to sell at 40 percent less than they had before…

It may be that serious sellers now face three gruesome choices: Sell at a very disappointing price as soon as possible, sell at a worse price later, or wait the many years it may take to return to price levels that were enjoyed before the crash of 2008.”

http://www.malibutimes.com/articles/2008/09/24/news/news6.txt

We are not headed into a Depression.  There are two significant innovations since the Depression: deposit insurance and flexible currencies.  If US GDP declines 25% relative to world GDP (which could easily happen), but all of that decline manifests itself as a currency depreciation, then Americans won’t really notice much.

Back in the days of the Depression, it was seen as more important to support the currency than to default on debt.  Today, of course, untenable sovereign debt is always defaulted on: either explicitly or via a depreciating currency or inflation.

It’s not about liquidity.  That’s a fallacy being argued by the administration.  All of the banks and primary dealers in treasuries can get plenty of liquidity from the fed, using MBS as collateral.

It’s about their balance sheets.  Banks with lots of out of favor assets have two problems: 1. No market price.  2. When a transaction happens, it’s heavily discounted from what other sellers think it’s worth.

Like so many homeowners, many banks think that their assets can’t possibly be worth much less than a year ago.  So too, they want someone else to take or minimize their losses.

Also like homeowners, some banks were more conservative, and don’t have liquidity or solvency problems.  They just hope that everyone else’s troubles don’t manage to somehow pull them down too.

I work for one of the large solvent financial institutions.  We don’t need a bailout.  Many others are at the opposite end of the spectrum, nothing can help them and they know it.  In between is a vast group of people in denial, and a somewhat overlapping group holding on and hoping to win the bailout lotto.

There is a gigantic amount of money on the sidelines, sitting in what investors hope are comparatively safe places.  Some of them are worried about losses and volatility.  They will take a while to invest in equities again, or buy a house.

There is another large group that is sitting on their cash because they think they can hop back in when the market has dropped sufficiently.  People who I have never seen want to do market timing before are doing it now.

For me, I am completely out of the stock market, and the housing market.  Money spread around in some CDs, municipal bonds.  I have one of the best performing portfolios around this year, because I have one of the few that didn’t lose money.  Some people would moan about making 4% pretax.  However, when asset prices are dropping by 20-30% per year, it’s actually one hell of a return.  Consumer prices have very little to do with asset prices.

I agree.  Depression isn’t the right word.  We have several themes:

1.  Massive deleveraging.  People borrowed money to buy assets in huge quantities from about 2002-2007.  Now they are selling the assets and paying off the loans.

2. The great credit spread.  The difference in borrowing rates between good and risky borrowers is large compared to recent years.  Many people who easily got cheap money in 2006 can’t get any loans now.  This applies both to individuals and businesses.  I received an offer last week for a 1.99% unsecured loan from my bank.  Why?  They are dying to make loans to people with really good credit.  They are making fewer personal loans, auto loans, and mortgage loans. 

3. Chains of defaults.  Remember the S&L crisis?  Most of their bad loans caused a problem for a borrower, an S&L, and the FSLIC. With MBS and credit default swaps, problems propagate into many different places.  Usually the problems make their way to stupid people, or people risking someone else’s money.  There is a reason why Lehman and Bear are gone, but JPMorgan and BofA are still around.  Lehman and Bear made huge bets that real estate would not go down.  Then, they couldn’t get out of those bets.

Ipo

with all due respect, as I have been telling people over the last few weeks in Irvine, with recent bank failureS and massive mega bailoutS, lending is going to get much tougher and economy is going to slow down.

like IR said many moons ago, something called a down payment is coming back (10-20 %, higher if you go above 750K), soon coming to a bank near you  

anecdotely some friends have been mentioning that jobs are hard to come by in Irvine and the OC.

The next few weeks will be interesting.

My apologies. The exceptions I was referring to were the two examples you posted (14 Amargosa and your 1600 sq. ft. condo).

I have since visited your website. I must say it is eye-opening to compare the listing price to the closing price as you are doing. I wish Redfin showed the last list price of sold properties in addition to the closing price.

If the majority of closing prices were higher than the listing prices (that you claim are not useful) then I would have to agree they aren’t (since a buyer would naturally expect to purchase at or below the list price).

However, of the 81 properties with closing price information, only 9% (7 properties) have a higher closing price than the listing price.

Note: I did not count houses that listed for say $899,990 and sold for $900,000 (because as buyer I would have easily forked over the extra hundred dollars just to show the seller how stupid those pricing schemes are).

Maybe I misunderstood your original point, I thought you were suggesting list prices are useless in the current market.

I know this though, you have really put some work into collecting that information, and I’m thankful you are kind enough to share it with the rest of us.

Nefron, thank you for explaining your view.

What do you think about the new bailout coming up for vote on Monday? If we can get consumer confidence back again and get the lending community back in business we might get out of this recession before it becomes a full scale depression.

Now if only I could get the same deal on my Margin Account.

I’m sorry Charles Brownell: you are clueless as to how this works despite your attempt at a scholarly explanation.
A 5% “worst case” scenario as you posted will mean permanent extinction if you have a 3% capital cushion as most of Wall Street did.
Sorry to be the bearer of even worse news but the market price is ALWAYS the “real price”. I shudder to think what your portfolio looks like if you are judging its value by what the prices should be and not what they are.
“House prices are declining because of mark-to-market”. WTF?! I’m not sure what to even say to this. You are posting on here so please read some of IR’s explanations.
Finally, CA real estate is down 41% YOY. From which alternate universe do you pull your 5% figure for losses from?

I’m thinking more like 8000, but it has to stay there for a while to ensure it’s not a false bottom.

I’m a voter, and I believe I should have an influence on how this country is run.

Therefore, I withdrew $5000 from BoA, put $4000 in a safety deposit box, and have the remaining grand around the house for incidentals.  We might have an earthquake or something, you never know.

I don’t feel it’s my bounden duty to support BoA’s business model, so they can carry on without leveraging $5000 of my money.  They don’t pay enough interest anyway, less than $4 total this year on average balance in 5 figures.  And they raised their fees. 

If inflation kicks off big time, I’ll use that to buy a CD in a locally owned bank with no real estate exposure.

Personally, I think it’s un-American to leverage oneself and one’s nation into default.  I didn’t participate, I didn’t benefit, not my problem.

Thanks to the Lehman and gangs who took our retirement money to pay for theirs. A friend of mine was a commercial underwriter for many many years. Last I spoke to him was three years ago underwriting commercial loans for Lehmans. Out of the blues he told me he want to do business development for Lehmans. Perhaps instead of the one out of ten or twenty loans a traditional lender willing to approve and fund Lehman jack it up to nine out of ten deals funded. Greed! Thanks to Bush and his three stooges, our country is having the 2nd 911-financial crisis to end his presidency. It’s impossible to rescue this crisis whether Obama Bi"n-La"den get to the White House or John the “Dump ?ss” McCain who told the American his Campaign slogan “Country First” by choosing someone who has little leadership. Either way, this country is heading south in the coming years. In relative terms, when there is a third stage cancer, there is nothing one can cure overnight.