Yay, the stock market is up, the economy is getting better, and we solved the mortgage problem — all it cost us was a few trillion dollars (ok, more than a few). We’re out of the woods, right?

Here is the chart we looked at a while ago with when mortgages with variable rates reset those rates… notice the big wave of green-ish stuff in 2007 and 2008? That’s what we just finished dealing with.

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You might also notice that in front of us there is a big wave of yellow-ish stuff in 2010 and 2011. Interesting, no?

John Hussman wrote about this in his weekly review:

Below is a slightly different schedule we’ve seen. It doesn’t show the first round of sub-prime resets that ended in early 2009, and is based on different classifications, but is largely consistent with the overall profile we can anticipate.

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…To reiterate what the reset curve looks like here, the 2010 peak doesn’t really get going until July-Sep (with delinquencies likely to peak about 3 months later, and foreclosures about 3 months after that). A larger peak will occur the second half of 2011. I remain concerned that we could quickly accumulate hundreds of billions of dollars of loan resets in the coming months, and in that case, would expect to see about 40% of those go delinquent based on the sub-prime curve and the delinquency rate on earlier Alt-A loans.

If it cost us several trillion dollars, including nationalizing Fannie and Freddie to deal with the subprime wave of resets, what might happen with the second wave?