I’m willing to bet that the Option ARM problem will be just as bad as the subprime meltdown. Negative reactions to the news will likely be more widespread, perhaps faster, as fewer people are going to believe the “it’s contained,” line a second time around. However, I don’t think the crisis has begun. Just like the subprime crisis, some place in California, Nevada, Arizona, or Florida will be the canary in the coal mine. Miller has dibs on Arizona.

The banks will do everything they can to slow down the unwind. With government support, the problem can be delayed quite a bit. Despite my general gloomy attitude, I’d guess that this problem doesn’t really begin for another six months (I wouldn’t be surprised if they could kick the can down the road until 2012, but that scenario ends in a very clear Depression for me). That gives the banks some time to earn a nice bucket of loss reserves.