Some trust in chariots, and some in horses: but we will remember the name of the LORD our God. - Psalm 20:7
When Ambrose Evans-Pritchard reported from Washington, he was head and shoulders above the local talent in uncovering and reporting facts about the reality of Clinton moral defects. He is now reporting facts and expert opinions on the extent of the current worldwide credit debacle.
I report and link. You decide. - BJon
Connolly says the Fed-led pack of central banks have made such a mess of capitalism by blowing credit bubbles (with low rates in the late 1990s and 2003-2006) that they now have no alternative other than to relaunch the "Ponzi Scheme", or risk depression.
This will have political consequences, of course. "The looming threat on the horizon, or just over it, is that the socialization of risk will be accompanied, in many countries, by the socialization of wealth," he said. [/] [...] "This rescue has back-fired. The central banks don't want anything to do with it. There is a fear that the big four US banks are trying to hide their debts," said Hans Redeker, currency chief at BNP Paribas.
[...] Even so, equities have not begun to reflect the reality that the 2006-2007 credit bubble has popped and cannot be easily reflated at a time of stubborn, lingering inflation. Spare me the mantra that the "fundamentals" are sound. Credit is the ultimate fundamental. [/] Woe betide Wall Street if the Fed fails to slash rates dramatically over the Winter, starting on October 31. [/] Woe betide the dollar if it does.
From a Telegraph [U.K.] blog article, The sky has already fallen, more follows:
The sky has already fallen [/] Posted by Ambrose Evans-Pritchard on 25 Oct 2007 at 12:36 [/] Ambrose has covered world politics and economics for a quarter century, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London.
If you are a bear, you must accept that you will always be wrong in polite society, and you will continue to be wrong all the way down to the bottom of recession. That is the cross that bears must bear. [/] Over the last three months we have seen a rolling collapse of speculative debt and real estate across half the global economy, yet friends still come over to my desk at the Telegraph, with that maddening look of commiseration on their faces, and jab: "so when is the sky going to fall then, eh?" [/] Well, excuse me. The sky has fallen. The median price of new homes in the US has crashed from a peak of $262,6000 in March to $238,000 in September. (Commerce Department). This is a 9pc drop nationwide. [/] The slide in existing homes is catching up. They have come down from $229,200 to $211,700 in three months. (National Association of Realtors). Yet we have barely begun to see the default hurricane as teaser rates contracted in 2005 and 2006 on floating mortgages kick up venomously over the winter, peaking around in the Spring of 2008.
[...] In Britain, we have had the first bank run since the City of Glasgow Bank collapsed in 1878. The Fed has cut the interest rates a half point and vastly increased the pool of eligible collateral for Discount operations. The European Central Bank has injected over €400bn of liquidity in the biggest intervention since the euro was created. [/] Japan is in recession. Housing starts fell 23.4pc in July and 43.4pc in August. [/] The US dollar has fallen below parity with the Canadian Loonie for the first time since 1976, and to all-time lows on the global dollar index.
All it will take now for a full-fledged rout is a move by the Saudi and Gulf states to break their dollar pegs, which they may have to do to prevent imported US inflation causing havoc; or for the Asian banks stop buying US Treasuries - as Vietnam, Singapore, Korea, and Taiwan, have gingerly begun to do. [/] What more do you want? [/] It is true that stock markets have once again decoupled from the realities of the debt markets. But they did this in the early summer, when the Bear Stearns debacle was already well under way. They caught up famously in August.
Nobody I talk to in the City credit trenches believes for one moment that the crunch is safely over. Indeed, they think that we are edging back to extreme stress levels, and the longer it goes on, the worse the damage. [/] [...] Once you go down the chain, the picture changes fast. The iTraxx Crossover index measuring spreads on mid to low-grade corporate debt has jumped 100 basis points or so in the last week to around 360. It costs companies 1.8pc more to borrow than it did in the halcyon days of the credit bubble in February, if they can borrow at all. [/] The ABX indexes measuring subprime debt - those infamous CDO packages of mortgages sliced and diced, and sold to German pension funds and Japanese insurers with a lot of lipstick -- are still falling to record lows.
[...] This means that the toxic BBB tier has lost almost four fifths of its value. Even the AA has lost a third. [/] Now, remember that the total stock of subprime and Alt-A (close kin) debt issued from early 2005 to early 2007 amounts to $2 trillion. Ben Bernanke's estimate that losses would be $100bn looks wildly optimistic.
[...] These SIVs (structured investment vehicles) are 'conduits' - in City argot - that allow banks to juice profits by speculating off books on high-risk debt. They borrow short (three to six months) to invest long (five years of so), making money on the interest arbitrage. Until the game blows up, of course. [/] Some $370bn still needs to be rolled over, and there lies the rub. The strong suspicion is that Hank Paulson's $75bn SIV rescue for the big four US banks is intended to cover up the problem by feeding out losses slowly, rather than allowing firesales to cause a cascade. [/] As the Bank of England warned, the Super-Siv should not be used to prop up fictitious valuations. [/] "It stinks, as does the Treasury's sponsorship of the scheme. It seems designed to prevent price discovery." says Bernard Connolly, global strategist for Banque AIG.
Connolly says it resembles the slippery practices at the start of the Bear Stearns debacle, when creditors quickly abandoned attempts to force CDO sales by the Bear Stearns hedge funds as soon as they realized that prices were collapsing - exposing the awful truth that hundreds of billions were falsely valued on books. [/] Nauseating though Paulson's MLEV -- 'Master Liquidity Enhancement Conduit' - may be, it probably has to be done. [/] [...] 39 comments [My ellipses and emphasis]
Jim :) Smiling aka Brother Jonathan aka Toto Of Kansas | Link to my Blogs, Forums & Essays
