On August 27, 2006, this column suggested that US house prices would fall by 15% nationwide, peak to trough. On March 11, 2007, this column suggested that the total bad debt loss from the mortgage crisis would be about US$1 trillion. At a meeting at the American Enterprise Institute Wednesday, it became clear that in both cases I was not pessimistic enough. Sorry!

This is not a pretty picture. The losses to come are probably large enough to wipe out the banking system, and the interconnected network caused by modern finance is sufficiently fragile that the failure of any one major house, if carried out through normal bankruptcy processes, would be sufficient to bring down the world economy as a whole.