Stocks Fiddle as Subprime Burns

"Low-income households account for a smaller share of total consumer spending than they used to," he writes. The poorest 20% of the U.S. took in 3.4% of total income in 2005, down from 4.1% in 1970.

For the institutions that made these loans, some pain may be in the cards, but this is not the 1980s, says Joe Brusuelas, chief economist at IDEAglobal. He adds that most institutions are properly hedged against the credit risk in their portfolios.

"The key is securitization," says Slok. Mortgage lenders securitize and sell off the loans they make immediately, so the risk is distributed globally, he says. No individual institution is as exposed as if they had all the loans on their own books. "The explosion of securitization and derivatives has helped make the economy more resilient to these setbacks," says Slok.

Banks across the nation have started to rein in their lending standards as well, according to the Federal Reserve's quarterly survey of senior loan officers, which came out earlier this week. Their caution indicates that they are concerned about credit quality, but also that they are attempting to protect against further real estate market weakness.

"The results indicate that banks substantially tightened their credit standards for mortgages to individuals, with the percentage of banks that tightened standards reaching the most since 1991," writes Tony Crescenzi, chief fixed-income strategist at Miller Tabak and RealMoney.com contributor. "Banks are primarily concerned with the real estate market and not the overall economy."