This link has been bookmarked by 1 people . It was first bookmarked on 23 Oct 2008, by harry palmer.
We are entering rthe second and more dangerous phase of this financial melt down. As corporations begin to go down the CDS and CDO's written on their debt will blow up.
When they do, the holders lose massive amounts of money. They are losing often 90 cents in every dollar. Most of the institutions making these losses are also still highly leveraged. This means a small loss is enough to force them to have to raise more real cash to cover their losses and replace their capital holdings.
To raise the cash they have to sell assets, call in debts or seek yet more help from the governments.
Selling assets is depressing the value of those asset types on the market making all the other holders of that kind of asset a little bit poorer. Bringing them, in turn, a little closer to having to sell themselves.
Calling in debts forces those from whom you call in the debts closer to bankruptcy. This is the situation with Gmac the finance arm of GM. It is virtually bankrupt and may file very soon. To stave that off, Gmac is forcing the GM dealers to whom it has loaned money to pay up. They are starting to go bust. They default on loans and round we go.
Sovereign nations have been offering themselves as the backstop to every bad debt brought to them. If they don't stop NOW they will find their own debt, sovereign national debt, is down graded. This may happen to US national debt quite soon.
Once that happens we are facing a Bond market dislocation. After that I won't be writing any more as there will be no point.
This is NOT a liquidity crisis it is a Solvency crisis. The banks are insolvent. They know it. It is why they won't lend. The only lending they are doing is on the basis of the real cash the governments have injected. The governments have essentially created little banks inside the carcasses of the banks who are still poisoning the financial stream with all the worthless and toxic debt backed paper they refuse to admit is worthless.
The banks and governments have refused to admit thee assets are worthless. Refused
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