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That makes bank losses limited to the delta between the foreclosed value and their loans.

No so. Thanks to the magic of leveraging (mathematically sophisticated Ponzi schemes that only a computer can calculate) many banks, insurance companies, investment firms, retirement funds, foreign governments, and other financial institutions are in for more than just the value of the underlying real estate property.

The overall affect of this leveraging of mortgage paper is described in Eugene Linden: Collapse of a Fiat Currency: The AAA-Rated CDO Tranche.

The first couple of steps in this financial alchemy are nicely explained in the YouTube video: subprime derivatives.

I don't know the numbers exactly (I doubt anyone does), but my recollection is that there is over $100 Trillion of this toxic paper, built in a Ponzi scheme on roughly $10 Trillion of mortgages. Our national debt is a similar $10 Trillion, and our Gross National Product (GNP) is perhaps $14 Trillion. The total unfunded liabilities of the U.S. government for future Social Security, Medicare and Medicaid is (my memory is fuzzy here) perhaps $50 Trillion.

The size of this Everest of toxic paper dwarfs all.

I don't know the numbers exactly (I doubt anyone does), but my recollection is that there is over $100 Trillion of this toxic paper, built in a Ponzi scheme on roughly $10 Trillion of mortgages.

I wish someone would explain how this works. Instead of just saying it.

I don't know the numbers exactly (I doubt anyone does), but my recollection is that there is over $100 Trillion of this toxic paper, built in a Ponzi scheme on roughly $10 Trillion of mortgages

Leverage is not a Ponzi scheme. It is simple:

You have 100 million in cash.

You use it to buy 100 million of mortgages.

You use your new mortgages for collateral on a loan and you borrow 95 million dollars.

You buy 95 million dollars of mortgages.

You use your new 95M mortgages as collateral on a loan and you borrow 90 million dollars....

And so on.

Each time you make a new borrowing the lender makes you take a haircut on the collateral. But that's okay. There will be plenty to leverage with.