And, as usual, he's probably right:

Its easy to get lost in the details of subprime mortgages, resets, collateralized debt obligations, and so on. But there are two important facts that may give you a sense of just how big the problem is.First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels.Second, there was a tremendous amount of borrowing into the bubble, as new home buyers purchased houses with little or no money down, and as people who already owned houses refinanced their mortgages as a way of converting rising home prices into cash.As home prices come back down to earth, many of these borrowers will find themselves with negative equity owing more than their houses are worth. Negative equity, in turn, often leads to foreclosures and big losses for lenders.And the numbers are huge. The financial blog Calculated Risk, using data from First American CoreLogic, estimates that if home prices fall 20 percent there will be 13.7 million homeowners with negative equity. If prices fall 30 percent, that number would rise to more than 20 million.That translates into a lot of losses, and explains why liquidity has dried up. Whats going on in the markets isnt an irrational panic. Its a wholly rational panic, because theres a lot of bad debt out there, and you dont know how much of that bad debt is held by the guy who wants to borrow your money.How will it all end? Markets wont start functioning normally until investors are reasonably sure that they know where the bodies I mean, the bad debts are buried. And that probably wont happen until house prices have finished falling and financial institutions have come clean about all their losses. All of this will probably take years.Meanwhile, anyone who expects the Fed or anyone else to come up with a plan that makes this financial crisis just go away will be sorely disappointed.

Robert P. Imbelli, a priest of the Archdiocese of New York, is a longtime Commonweal contributor.

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