Article

2007-11-13 -Signs, Portents, and the Weather-

BBC: Carnage on Wall Street as loans go bad

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Posted by 3dc 2007-11-13 00:36|| || Front Page|| [5 views ] Top

#1 Australia has a similar problem, but ours hasn't hit yet.

Posted by phil_b 2007-11-13 01:16|| 2007-11-13 01:16|| Front Page Top

#2 Sorry to spoil all the negativity folks, but I'm gonna stick my two cents worth in here before all the talk about the sky falling.

If the beeb is on a story about the markets or the economy, its most likely a non story. At best, it's old news.

You'll notice the beeb is wringing their hands over a potential hit to the financial sector of $500 billion. Or, to make it scarier, they say half a trillion. American assets total about $112 trillion.

One need only ask themselves what kind of calamity would result from a person with a hundred grand in assets losing $500 in the stock market.

None.

Zero.

Zilch.

We can all go back to worrying about ~~stagflation~~ inflation or the ~~Japanese~~ Chinese economy or whatever it is that's going to bring down the American economy this week.

Posted by Mike N. 2007-11-13 01:42|| 2007-11-13 01:42|| Front Page Top

#3 Mike, if you note "BBC" is in the title....

So I gave you the "sky is falling" hint.

Sun Tzu would want to know what the bbc was claiming. After all the bbc does hate us.

Posted by 3dc 2007-11-13 02:37|| 2007-11-13 02:37|| Front Page Top

#4 The problem isn't that the banks are going to lose money. The problem is the amount of money available to purchase capital assets particularly real estate will go down and inevitably asset prices will go down as well. And those kinds of downward spirals are very difficult to break out of. Look at Japan over the last 15 years and that was during a period of low inflation.

Posted by phil_b 2007-11-13 02:58|| 2007-11-13 02:58|| Front Page Top

#5 The BBC hates everyone including itself.

Posted by nucking futs 2007-11-13 02:59|| 2007-11-13 02:59|| Front Page Top

#6 With numerous other facets of the US economy being very strong, BBC again flunks out with its use of adjectives. Quagmire was the last adjective they tried to use regarding the US that also did not apply. Three adjectives that come to my mind regarding BBC is "Babbling Bungling Clowns".

Posted by Don Vito Shens6025 2007-11-13 02:59|| 2007-11-13 02:59|| Front Page Top

#7 There will always be money available with those who have solid credit. Money will no longer be available for those who had guestionable credit to begin with. In Texas land prices are shooting up in areas where gas drilling is heating up in the Barnet Shale section of Texas, which includes one of the most populated area in the state...

Posted by Don Vito Shens6025 2007-11-13 03:05|| 2007-11-13 03:05|| Front Page Top

#8 Well, if only good credit risks are getting loans, that means fewer jobs for construction, fewer supplies being bought, etc. The USA really doesn't succeed in anything unless it succeeds wildly. Americans usually get upset if normal growth is occurring.

Posted by gromky 2007-11-13 03:51|| 2007-11-13 03:51|| Front Page Top

#9 "Look at Japan over the last 15 years and that was during a period of low inflation."

There are cultural and structural reasons for Japan's stagnant state that are not likely to be duplicated here. Americans do not have the same dread of failure and the need to rebuild their lives after financial loss (see yesterday's thread on suicide in Japan) and therefore our interest rate can go up even if it means some folks will go belly up financially.

Of course, this difference exists in the real world only if the Fed allows interest rates to increase to reflect the actual cost of borrowing money. It remains to be seen if the current head will do so.

Posted by no mo uro 2007-11-13 06:12|| 2007-11-13 06:12|| Front Page Top

#10 Fewer loans equals less construction and lower margins for construction projects equals lower construction wages equals fewer jobs American construction workers are willing to do equals more work for illegal immigrants.
So the Wall Street carnage is a GOOD thing!

Posted by Glenmore">Glenmore 2007-11-13 07:30|| 2007-11-13 07:30|| Front Page Top

#11 Great article detailing some of the real estate carnage occurring, as well as the carnage to come. I don't think we're in for a depression, but the outsized profits trading in funny money that the financial institutions have have been raking in are at an end. Main Street America will make out fine, but the ~~lottery ticket holders~~ investment bankers are looking at much smaller bonus pools for the next several years.

Posted by Zhang Fei 2007-11-13 09:36|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2007-11-13 09:36|| Front Page Top

#12 Carnage on Wall Street is the least of my fears.

One problem is that the government is doing all it can to protect these bankers from their stupid decisions while letting the individual borrowers suffer for theirs. As a result we may well get ~~inflation~~ stagflation.

Posted by Nimble Spemble 2007-11-13 10:21|| 2007-11-13 10:21|| Front Page Top

#13 Here, here, Nimble. Screw the bankers. This will make the *second* time they've bilked the american taxpayer for billions (we talked just the other day about how Bernanke and that jackass Schumer want to create a $200B bail-out fund for jumbo loans, a la the Savings and Loan bailout of yore). No sympathy. Let market forces work!

Posted by Geoffro 2007-11-13 10:28|| 2007-11-13 10:28|| Front Page Top

#14 Let market forces work!

And let them work fast. The market takes care of these problems quickly if it is not prevented from doing so. But since the introduction of the Reconstruction Finance Corporation our lords in government have thought they could eliminate pain and suffering from the business cycle and that somehow this would not have an impact on the learning curve. Hubris writ large.

Posted by Nimble Spemble 2007-11-13 10:34|| 2007-11-13 10:34|| Front Page Top

#15 America should have no place for corporate socialism (take the gains "socialise" the losses).

Posted by Bright Pebbles 2007-11-13 11:00|| 2007-11-13 11:00|| Front Page Top

#16 I'm with the above posters on their screw the banks comments.

Problem is, in order to bail out the homeowners, we help out the banks in the process.

So, I would say, screw everybody. Let the chips fall where they may.

Posted by Mike N. 2007-11-13 11:39|| 2007-11-13 11:39|| Front Page Top

#17 Look at the Saudi Chief who is the main stockholder in CitiBank buying a Airbus 380 for a private toy. Obviously the games of CitiBank didn't hurt him.
How many was he behind?

Posted by 3dc 2007-11-13 11:40|| 2007-11-13 11:40|| Front Page Top

#18 Sorry, wrong noun- Sheik not Chief.

Posted by 3dc 2007-11-13 11:42|| 2007-11-13 11:42|| Front Page Top

#19 The thing is, most homeowners are good credit risks, so as long as they aren't trying to sell into what's become a buyer's market, they'll be unaffected. Despite Mr. Wife's aunt selling her house in California for $75,000 less than she would have gotten had she accepted that offer a year ago. She can still afford a brand new house near each set of grandchildren, so I don't think she'll be eating cat food any time soon.

Posted by trailing wife">trailing wife 2007-11-13 11:51|| 2007-11-13 11:51|| Front Page Top

#20 "Sorry, wrong noun- Sheik not Chief."

Thanks 3dc, we don't want to disparage our Native Americans.

Posted by Mullah Richard 2007-11-13 12:31|| 2007-11-13 12:31|| Front Page Top

#21 Anyone who has ever lived in the UK know that the BBC enjoys running any story or even editing or making up any story that is negative on America. I have no idea if it is left-over hostility from 1814 or even 1945 or our cold war against the Soviets (of which the BBC was infiltrated by real Ox-Cam commies) or the fact that we are so pro-Israel. In any event it is there in spades. Almost becoming sort of a superiority complex but very much delusional.

Posted by Jack is Back!`">Jack is Back!` 2007-11-13 12:50|| 2007-11-13 12:50|| Front Page Top

#22 As of noon today:

DOW is up +175.17 to 13,162.72
NASDAQ is up +50.18 to 2,634.21
S&P is up +20.95 to 1,460.13
NYSE Composite is up +165.63 to 9,735.60
AMEX Composite is up +3.64 to 2,381.91

... like, wheres the carnage?

Posted by Don Vito Shens6025 2007-11-13 13:33|| 2007-11-13 13:33|| Front Page Top

#23 The Beeb's been right about as much as the local weather forcasters. They keep predicting rain, and we're beginning to look like Georgia. Now it's pretty certain that the local housing market is going to take a hit here in Colorado Springs, at least until that new brigade arrives next year. That's from over-building, which has always been a symptom of Colorado Springs' boom-'n-bust cycle. Some banks and lending institutions made a lot of bad decisions, but they're not going to lose their shirts - just any major profits they were expecting to make. If you loaned $185,000 on a house with a market value of $185,000, you still have $185,000 in assets. It's only if the housing market really goes south, and prices begin to drop considerably that these lendors lose money. The rest is just cheap theatrics.

Posted by Old Patriot">Old Patriot 2007-11-13 13:41|| http://oldpatriot.blogspot.com/]">[http://oldpatriot.blogspot.com/] 2007-11-13 13:41|| Front Page Top

#24 update (to Don Vito... )
at COB today

DOW
+319.54 13,307.09
+2.46%
NASDAQ
+89.52 2,673.65
+3.46%
S & P 500
+41.87 1,481.05
+2.91%
10YR
-12/32 99 27/32
Yield:4.26%
OIL(NYM)
-3.45 91.17
-3.65%

Posted by mhw">mhw 2007-11-13 17:03|| http://hypocrisy-incorporated.blogspot.com/]">[http://hypocrisy-incorporated.blogspot.com/] 2007-11-13 17:03|| Front Page Top

#25 It's not just the BBC that's concerned.
There's a greater than 50 percent probability that the financial system ``will come to a grinding halt'' because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said. ``You have the SIVs, you have the conduits, you have the money-market funds, you have future losses still in the dealer's balance sheet in the banks,'' Peters said in an interview in New York. ``That's all toppling at once.''

The risk of systemic shock from the current subprime meltdown is quite large in the near term, Peters said. ``It's an overarching concern that we have,'' he said.

Posted by Anguper Hupomosing9418 2007-11-13 19:06|| 2007-11-13 19:06|| Front Page Top

#26 What a crock of BS! Loans are classified as "assets" on balance sheets; if they are bad, then, unless unrecoverable in the form of seized collateral, they are sold to financial agencies that specialize in collection. The seller takes a loss, but bankruptcy doesn't happen as long as their big balance sheet doesn't dislose a present and forseeable inability to pay off liabilities. The Beeb can't comprehend free market solutions, because only doctrinaire socialists are employed by the Beeb.

If we are in a tight money period, that means fiscal discipline. Under those regimes, inventory loans are heavily collateralized. That would shake out companies that are poorly managed.

Posted by McZoid 2007-11-13 19:50|| 2007-11-13 19:50|| Front Page Top

#27 TOPIX/OTHERS > THE NEW PEARL HARBOR, vv US economy and financial lending. A $12.0Trilyuuhn GDP USA has US$12.3Trilyuuhn held in foreign debt. *NEW CONGRESSIONAL STUDY/REPORT > US spending approxi US$1.5Trilyuuhn on WOT. Democrats are complaining that the Dubya war budget is double-priced.

Posted by JosephMendiola 2007-11-13 21:47|| 2007-11-13 21:47|| Front Page Top

#28 Dozens of foreclosed homes are flooding the Visalia-area market many of them suddenly owned by Fannie Mae because owners could no longer make mortgage-loan payments.

But just because these homes have been taken back by Fannie Mae and its various lending partners, dont look for bargain-basement fire sales even in a down real estate market, local real estate professionals say.

We had eight offers on [Fannie Mae-] foreclosed homes in August, said Sherrie Weece, a licensed agent for the past eight years in Visalia. All were turned away by Fannie Mae and came back to us.

The reason? The offers came in at an average of $60,000 less than the market price set by Fannie Mae, not enough for the mammoth privately owned mortgage conglomerate, even in a sluggish market where prices are declining, Weece said.

This is from another news item today. A lot of the financial distress is from adjustable rate mortgages. But Fannie Mae, the 800-lb gorilla of the mortgage business, is having problems with fixed rate mortgages, since those are the only kind it has on its books. I don't even want to think about the kind of problems the other banks are in today. California and Florida have seen prices go down 1/3 from the high while sales volumes have gone down in half and inventory doubled or tripled. The fat lady hasn't sung on the bursting of this bubble. If your property is worth a lot more than it was when you bought it, the time to sell is now. My estimation is that we won't see prices at the current high level for at least a decade.

By the way, many financial institutions have a net worth that is anywhere from 1/10 to 1/16 of their liabilities. This is another way of saying that if a bank's portfolio is written down by 15%, the bank has a negative net worth, and may be closed down by the government. Banks are exposed in two ways - loans to developers that never reached completion and risky mortgages that they previously sold to someone else as bonds, but are now having to keep on their books. These risks are why many banks are now having difficulty floating commercial paper or issuing debt. It is why Countrywide almost went under a month or so ago. The problems with real estate have nothing to do with BBC negativism - they are related to excessive leverage on the part of home buyers in response to a housing price bubble.

The real kicker is that American real estate holding costs are higher than elsewhere because local government is funded locally via real estate taxes instead of via the income tax (which is the case in other countries). This is why American real estate is deceptively cheap as a percentage of income when when compared to other countries. Holding costs are way higher as a percentage of home value.

Posted by Zhang Fei 2007-11-13 22:49|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2007-11-13 22:49|| Front Page Top

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