$1 trillion in subprime == a $62 trillion financial crisis? wtf?

My wife and I have been puzzled about the actual size of the current financial crisis. The huge sums of money being set aside to bail out failed banks seemed to be so much larger than could be possible for a country of 300 million to rack up in mortgage debt.

Here are a few sums, if I can believe Wikipedia:

• The U.S. mortgage market is estimated at $12 trillion
• Approximately 9.2% of loans either delinquent or in foreclosure through August 2008
• Subprime ARMs only represent 6.8% of the loans outstanding
  

So even if we double the current deliquent loses to 20% that would equate to 20% x $12 trillion = $2.4 trillion. While that is a very large number, the amount of money being throw at the problem world wide is much larger. Something is not right and smells of a Chewbacca Defence to me.

Our suspicions may be confirmed by this article talking about how the Wall St quants and traders built a pyramid of debt on top of relatively few assets (ABS, CDO), and then used the speed and power of computers to disguise the true value of the assets:

Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers.