Whats sending companies to the poor house isn’t the mortgage situation. Total mortgage exposure in the country is probably in the 7-10 trillion dollar range.
It’s the Credit Default Swaps and the hedge funds. Legalized crap shooting! 50-60-75 trillion? Who knows. Whatever it is, it totally dwarfs the housing sector.
CDS were definitely a weak stressor in the system, as were the high leverage and some of the incentives in credit ratings, but bad mortgages are indeed the issue, not hedge funds, for example.
It is the uncertainty of the quality of mortgage-based assets on the books of financial firms that is making inter-bank lending and the other party in some CDS excessively risky. Now you can add on top of it the negative effects of bad governmental intervention and fear of compounding fear to what at the core is bad mortgages.