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Crisis May Make 1929 Look A 'walk In The Park'  
User currently offlineMadameConcorde From San Marino, joined Feb 2007, 10725 posts, RR: 38
Posted (6 years 3 months 3 weeks 5 days 9 hours ago) and read 1909 times:

Crisis may make 1929 look a 'walk in the park'

As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

# Read more from Ambrose Evans-Pritchard
# Is the crisis getting worse? Get the latest comment
# The financial outlook in 2008: Experts' predictions

http://www.telegraph.co.uk/money/mai...risis123.xml&CMP=ILC-mostviewedbox


There was a better way to fly it was called Concorde
13 replies: All unread, jump to last
 
User currently offlineHuskyAviation From United States of America, joined Aug 2007, 1152 posts, RR: 4
Reply 1, posted (6 years 3 months 3 weeks 5 days 7 hours ago) and read 1868 times:

This article is just more "the sky is falling" crap.

The market is dead in the 4th Quarter--yeah, the credit crunch really did grind things to a halt for the asset-backed securities markets in October and November. The markets have been slightly more active in the last 2 weeks of this year, a time typically dead even in the best of years. One of our biggest clients (a bank that you've heard of, I promise) just "upsized" a deal already in the market (a very good sign), and expect to be back in the market twice more before the end of the year. Two other extremely large and frequent issuers will be getting back into the market aggressively in early Q1, as they see market conditions steadily improving.

The article was right about banks having to bring a lot of stuff back onto their books, a painful process which they always want to avoid. But they can't, and won't, leave it on the books for long--they'll be turning it over and getting it back off the books as soon as possible (and I know this because I've been on conference calls with them where they've said as much), so at least in the non-RMBS and CMBS asset-backed securities markets, 2008 won't be a banner year like 2006, but it will be about average.

That is all the detail I can provide.


User currently onlineMaverickM11 From United States of America, joined Apr 2000, 16934 posts, RR: 48
Reply 2, posted (6 years 3 months 3 weeks 5 days 5 hours ago) and read 1824 times:



Quoting HuskyAviation (Reply 1):
This article is just more "the sky is falling" crap.

True, although this is happening during an election year, so it wouldn't surprise me if the politicians, always willing to help, exacerbate the crisis exponentially.



E pur si muove -Galileo
User currently offlineFalcon84 From , joined Dec 1969, posts, RR:
Reply 3, posted (6 years 3 months 3 weeks 5 days 5 hours ago) and read 1808 times:



Quoting HuskyAviation (Reply 1):
This article is just more "the sky is falling" crap.

Right. I'm sure they were saying that in the summer of 1929, too.

We are headed into a recession, of that I'm certain. With the housing market collapsing, and the dollar as weak as it's been since God knows when, and energy prices sky-high, a recession is probably in the offing. I doubt it'll hit 1929 standards, but it could be a nasty one.


User currently offlineMham001 From United States of America, joined Feb 2005, 3389 posts, RR: 2
Reply 4, posted (6 years 3 months 3 weeks 5 days 4 hours ago) and read 1779 times:



Quoting Falcon84 (Reply 3):
We are headed into a recession, of that I'm certain.

Meanwhile the US economy grew at a +4% rate last quarter. Yea, the sky is falling....


User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 5, posted (6 years 3 months 3 weeks 5 days 3 hours ago) and read 1744 times:



Quoting Mham001 (Reply 4):
Meanwhile the US economy grew at a +4% rate last quarter. Yea, the sky is falling....

The US economy grew because of uncontrolled consumer spending. The January hangover to the economy when people get their credit card bills and can't tap unlimited home equity to pay the minimums is going to be a big deal. Just read yesterday's headlines in the NYT about growing credit card deliquency.

The fact of the matter is that the article hits the nail on the head when it comes to many of the points. The most valid of which is that risk was improperly priced making credit way too easy to get and fueling the asset pricing bubble in real estate. This bubble resulted in people buying house that they simply could not afford and speculating on further appreciation so that they could refinance their way out of their insolvency. Anyone who want to really understand what's going on needs to Google Basel II to understand the impact bad debts have on bank's ability to lend going forward.

Central banks were at the heart of this mess and their continued half-assed interventions will prolong it. What needs to happen is that interest rates need to shoot up so that the equilibrium point is reached without government intervention. The increasing cost of capital will lead to rational asset pricing. Like with any other thing, when its subsidized people consume too much of it. Right now, the central banks are subsidizing credit by pumping more and more liquidity into the system in a hopeless attempt to get rates to fall. But the fact is that banks don't want to lend because they're starting to accept the fact that even with a cheap source of money, a bad loan is a bad loan.

Will it reach the extent of 1929? Who knows. I personally don't think so. But I do know that a lot of people I know who lived like they were wealthy during this run up are desparate to unload the vacation homes they've purchased and cut their wives' spending back. Just last weekend we went out with a couple who told us that in July they went to Vegas and spent $50,000 in a weekend. Now they're fighting over the $200 jeans the wife purchased. Their daughter's birthday party was slashed from a huge party with 50 people and a petting zoo in 2006 to 5 children and some cake and ice cream in 2007.


User currently offlineN1120A From United States of America, joined Dec 2003, 26196 posts, RR: 76
Reply 6, posted (6 years 3 months 3 weeks 5 days 3 hours ago) and read 1742 times:



Quoting Pope (Reply 5):
Just read yesterday's headlines in the NYT about growing credit card deliquency.

Actually a very interesting, and saddening report. 50% growth in the debt rolls for those delinquent more than 3 months.



Mangeons les French fries, mais surtout pratiquons avec fierte le French kiss
User currently offline57AZ From United States of America, joined Nov 2004, 2550 posts, RR: 2
Reply 7, posted (6 years 3 months 3 weeks 5 days 2 hours ago) and read 1699 times:

Nevada and Florida are currently tops in the numbers of home foreclosures that have been filed. Bankruptcy rates are climbing here in Arizona and the housing market is DEAD. Top that off, some major employers such as CitiGroup have announced that major layoffs will be right around the corner (20,000+ jobs gone in the next quarter). Don't forget that with current oil costs, the cost of home heating is quickly becoming inaccessible for many in the north and northeastern US. Public assistance for heating oil in Maine has seen a doubling of applicants this year alone.

Here in Tucson, the Salvation Army and the Tucson Community Food Bank have noted that the amount of donations so far this year have fallen from those of past years. In fact, as of last week they determined that they would probably not obtain the minimum amount of food required to serve the estimated number of people that will need a meal on Christmas Day. When times get bad, one of the first telltale signs is a drop in charitable giving and I suspect that we're not alone this holiday.



"When a man runs on railroads over half of his lifetime he is fit for nothing else-and at times he don't know that."
User currently offlineHuskyAviation From United States of America, joined Aug 2007, 1152 posts, RR: 4
Reply 8, posted (6 years 3 months 3 weeks 5 days ago) and read 1663 times:



Quoting Pope (Reply 5):
The US economy grew because of uncontrolled consumer spending. The January hangover to the economy when people get their credit card bills and can't tap unlimited home equity to pay the minimums is going to be a big deal. Just read yesterday's headlines in the NYT about growing credit card deliquency.



Quoting N1120A (Reply 6):
Actually a very interesting, and saddening report. 50% growth in the debt rolls for those delinquent more than 3 months.

Based on the conversations we've had with our clients and the internal meetings I've been in to discuss the credit card asset-backed securities markets (which is my primary area of practice), most banks have seen higher delinquencies and will eventually have higher charge-offs in 2008 as those delinquencies work their way through the pipeline...however, after having historically low delinquencies and charge-offs from 2005-2007, the numbers are simply returning to their prior levels, and the banks are not overly concerned about the long-term default rates. The ABS markets went through a similar period from 2001-early 2003 after 9/11, but the numbers eventually stabilized, and at least from our perspective, we expect they will do so again. The ratings agencies are still comfortable with the numbers they're seeing.


User currently offlineMD-90 From United States of America, joined Jan 2000, 8494 posts, RR: 12
Reply 9, posted (6 years 3 months 3 weeks 4 days 23 hours ago) and read 1619 times:



Quoting Mham001 (Reply 4):
Meanwhile the US economy grew at a +4% rate last quarter. Yea, the sky is falling....

What was the real rate of inflation last quarter?


User currently offlineHalls120 From , joined Dec 1969, posts, RR:
Reply 10, posted (6 years 3 months 3 weeks 4 days 23 hours ago) and read 1614 times:



Quoting HuskyAviation (Reply 8):
Based on the conversations we've had with our clients and the internal meetings I've been in to discuss the credit card asset-backed securities markets (which is my primary area of practice), most banks have seen higher delinquencies and will eventually have higher charge-offs in 2008 as those delinquencies work their way through the pipeline...however, after having historically low delinquencies and charge-offs from 2005-2007, the numbers are simply returning to their prior levels, and the banks are not overly concerned about the long-term default rates. The ABS markets went through a similar period from 2001-early 2003 after 9/11, but the numbers eventually stabilized, and at least from our perspective, we expect they will do so again. The ratings agencies are still comfortable with the numbers they're seeing.

Every year, we are bombarded with "the sky is falling" reports of poor Christmas sales. The after the holidays, buried deep in the paper you might read that sales weren't so bad after all.

Same thing with all this talk about a recession. While I agree with Pope that easy credit allowed people to buy homes they could not afford, and they now can't refinance their way out of their insolvency, I don't see the spectre of 1929 looming. In my neighborhood of over 200 townhomes, only one is being foreclosed.

The media loves to perpetuate myths.

Quote:
3. The only way people cope with the middle-class meltdown is by falling into debt.

You've probably heard that the average U.S. household carries $9,300 in credit card debt. But that misleading statistic includes the debt of the self-employed and some small businesses. The 2004 Survey of Consumer Finances, which does not include business debt, showed that 54 percent of households had no credit card debt after paying their monthly bill and that the average household credit card debt was just over $2,300.

Mortgages, which represent 79 percent of all debt, are the more pressing concern. But even according to the most pessimistic estimates, only 1 to 2 percent of homeowners will be forced into foreclosure in the next few years. Assets have grown faster than debts for most middle-class families. Median net worth has grown 35 percent since 1989, according to the Federal Reserve Board, and only 15 percent of households have debt payments worth more than 40 percent of their income or are 60 days late on any debt payment.

http://www.washingtonpost.com/wp-dyn.../12/21/AR2007122101556.html?sub=AR

Oh, and a bit off topic, but from the same article.

Quote:
2. The middle class is shrinking.

True, fewer people today live in households with incomes between $30,000 and $100,000 (a reasonable definition of "middle class") than in 1979. But the number of people in households that bring in more than $100,000 also rose from 12 percent to 24 percent. There was no increase in the percentage of people in households making less than $30,000. So the entire "decline" of the middle class came from people moving up the income ladder. For married couples, median incomes have grown in inflation-adjusted dollars by 25 percent since 1979.



User currently offlineHuskyAviation From United States of America, joined Aug 2007, 1152 posts, RR: 4
Reply 11, posted (6 years 3 months 3 weeks 4 days 22 hours ago) and read 1594 times:



Quoting Halls120 (Reply 10):
Every year, we are bombarded with "the sky is falling" reports of poor Christmas sales. The after the holidays, buried deep in the paper you might read that sales weren't so bad after all.

LOL it's funny you mention that, I was telling my partner the other day that I can't remember a year that holiday sales were predicted to be fantastic. It's always going to be "disappointing." Every year they predict doomsday, regardless of how the economy is doing.

Quoting Halls120 (Reply 10):
You've probably heard that the average U.S. household carries $9,300 in credit card debt. But that misleading statistic includes the debt of the self-employed and some small businesses. The 2004 Survey of Consumer Finances, which does not include business debt, showed that 54 percent of households had no credit card debt after paying their monthly bill and that the average household credit card debt was just over $2,300.

This is quite true. If you go onto the SEC's EDGAR system, and search Capital One's recent 424(b) filings under its Capital One Multi-asset Execution Trust (COMET), you'll see that the trust numbers have been divided into two segments: consumer credit card receivables and small business credit card receivables.

Much is made of the growing "average" credit card debt carried by U.S. households, but also remember that these numbers are increased and affected by banks over time by increasing the credit limits for the lowest-risk accountholders. Higher limit accounts can very often be accounts that are AAA rated for securitization purposes. Prime lenders manage credit limits carefully for potentially risky accountholders.


User currently offlinePope From , joined Dec 1969, posts, RR:
Reply 12, posted (6 years 3 months 3 weeks 4 days 2 hours ago) and read 1519 times:



Quoting HuskyAviation (Reply 8):
The ratings agencies are still comfortable with the numbers they're seeing.

Are these the same agencies that consistently (and erroneously) rated much of the CDO's as investment grade when in fact they were junk? It seems to me that the credit rating agencies have either been negligent or complicit with many of the participants in this mess.

Quoting Halls120 (Reply 10):
Every year, we are bombarded with "the sky is falling" reports of poor Christmas sales. The after the holidays, buried deep in the paper you might read that sales weren't so bad after all.

I agree 100%. Last week ABCNews reported that year over year holiday sales were expected to be a "disappointing" 4% above 2006. I can't understand how a segment of the economy growing at a rate greater than the overall GDP can be disappointing.


User currently offlineMham001 From United States of America, joined Feb 2005, 3389 posts, RR: 2
Reply 13, posted (6 years 3 months 3 weeks 4 days 2 hours ago) and read 1510 times:

ABC radio has been having headlines all season about the disapointing sales. The one day, one hour they report sales look good. Next hour its, Womens dress sale down, sign of bad times for retailers. Then the next hour its back to sales look good. That only lasted one day before it was all gloom again. Then yesterday it reports sales are up 3.6 % (or 6%?). I kind of just quite paying attention during the news breaks now.

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