Trillions and trillions

Mutt and Jeff get talking at the bar:
(J) So how bad is it? The financial crisis?
(M) Pretty bad.
(J) Well, how bad exactly? Are people losing homes?
(M) Oh yes. Foreclorsures are running at a record pace.
(J) Aren't people just walking away from their houses?
(M) Yep.
(J) Why?
(M) To keep their credit cards.
(J) ???
(M) Well, if you don't have any sort of health insurance, which is the case for a lot of the sub-prime borrowers who are now losing their homes, you'll let your mortgage go before you let your credit cards go.
(J) I don't get it. Why?
(M) Well, you probably don't have that much of a down payment to lose. But even if you did, think of it this way--you need that credit card to pay your doctor. You need all seven of them that you probably have. You lose those, you can't pay to take your kids to the doctor.
(J) Is that really true?
(M) Well, it's hard to prove, but it is true that foreclosures are rising faster than credit card defaults, which are still pretty modest, although they are rising.
(J) Didn't I see that a bank went under the other day?
(M) Yep, IndyMac. A big mortgage bank with a whole lot of California exposure. They're history now. Second largest bank failure in US history, in fact.
(J) But the banks, are they ok?
(M) That depends on what you mean by ok. Your deposits are, up to $100,000, because they're insured by the FDIC. But if you own bank stock, that's a different story. You've lost a lot of money.
(J) How much?
(M) Trillions.
(J) Wow, how?
(M) Well, their share prices have been dropping steadily over the past year or so, and they're all worth a lot less than they used to be.
(J) By how much?
(M) Well, in very general terms, the market capitalizations of major banks have been badly hit. In the US, we've seen about $2.4 trillion of value destruction. In Europe, $1.5 billion has been lost. So that's about $4 billion of value destruction in eighteen months.
(J) Wow, where does it go?
(M) Into the phlogiston. You know what I'm talking about, right?
(J) Um, no.
(M) Well, if you take the price of a company's share, and multiply it by the number of shares, that gives you a number we call market capitalization. It's sort of used as a proxy for what people think a company is worth.
(J) And that's gone down, then, right?
(M) And how. In some cases a lot. Look at some of the European banks, where some investors think there's a lag effect, and we're gong to see even more write-downs of fancy and not-very-well-understood financial holdings. Barclays' share price is down 56% since 1 February 2007. RBS is down 59%. UBS is down 66%. And in the United States, Merrill Lynch is down 67%. Citi, where I used to work, is down 67%. Lehman is down 74%.
(J) Jeez, that sounds like a lot, right?
(M) Yes, indeed, it is quite a lot.
(J) So is it over yet?
(M) No.