DEATH WATCH-Financial-Economic
Web Address: http://www.diigo.com/list/visigoth/death-watch_financial_economicYou are here: Diigo Home > Visigoth Fontaine > Visigoth Fontaine's lists
Visigoth Fontaine
Items:12 | Visits:18
Category:Business & Finance | Tags:america, asia, banks, crisis, economics, europe, fed, finance, global, government, panic, plunge-team, recession, usa, wall-street
Created:on 2008-01-18 | Updated:on 2008-06-24
Articles, alerts and updates on the looming collapse of the economy; with emphasis on the USA but including impacts and influences across the globe.
Expand All
1 - 12 of 12
1 - 12 of 12
-
24Expand
US Economy to be Hit by Many Credit Crisis Hurricanes with Many Eyes :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
Tags: economy, hurricane, usa, credit, banks, auto, loans, small-business, subprime, arms, depression, recession on 2008-06-24 -All Annotations (0) -About
more fromwww.marketoracle.co.uk
-
US Economy to be Hit by Many Credit Crisis Hurricanes with Many Eyes
-
Jun 23, 2008 - 01:21 AM
By: Mike_Shedlock
-
Often times it is not the leading front of the hurricane that does the most damage, it is the backside. Here is the three stage pattern of hurricane damage.
-
The "calm" Bernanke thinks we are in, is nothing more than the prelude to the back side of a hurricane. My post, Things That Have Not Yet Happened , is essentially about the backside of the hurricane.
-
New Crisis Threatens Healthy Banks
-
The mainstream press is catching on. The Washington Post article " New Crisis Threatens Banks " is not really knew. It's really about the backside of a hurricane. Let's take a look.
-
Late payments on home-equity loans are at a record high, according to fresh data from the Federal Deposit Insurance Corp. The delinquency rates on loans for cars, small businesses and construction are spiking to levels not seen in a decade or more.
-
Unlike last year, when soaring mortgage defaults sparked a crisis of confidence in the financial system, the root of these problems is the downturn in the broader economy.
-
Simply put, consumers and businesses are strapped for cash with job losses growing and retail sales falling, economists said.
-
"We are not finished with the mortgage problem, but you are starting to see increased delinquencies in other forms of consumer debt," said Paul Kasriel, an economist at Northern Trust Securities.
-
"We are in the eye of the hurricane. We had the first wave of the credit crisis, and it was quite damaging. But there's another wave coming, and it's likely to be as destructive."
-
The institutions most at risk in this new phase of the credit crisis are regional and local banks, many of which stayed away from subprime mortgages.
-
These firms are key drivers of economic activity in communities across the country. Without them, consumers would lose a source of personal loans. Small businesses would struggle to stay afloat. Construction companies often can't finance local projects without these banks.
-
Losses at banks are going up as a result.
-
Smaller banks have even more exposure to such loans. Overwhelmingly, the institutions that hold the most home-equity loans are regional banks, such as SunTrust Banks and National City, according to Fitch Ratings.
-
Late payments and defaults in every other major category of consumer debt also rose in the first quarter, the American Bankers Association reported. Auto loans issued through car dealers have a delinquency rate of 3.13 percent, the highest since at least 1990, according the ABA.
-
"The rise in consumer credit delinquencies is consistent with a rapidly slowing economy," said James Chessen, the ABA's chief economist. "Stress in the housing market still dominates the story, but it's a broader tale of an overall weak economy." Many Hurricanes Many Eyes
-
I spoke about credit card delinquencies yesterday in $2 Trillion Reduction In Credit Card Lines Coming Up . But credit cards and home equity loans (HELOCs) are just two of the impending problems.
-
Commercial Real Estate is yet another backside of the hurricane. More realistically, it is yet another hurricane that is just hitting shore, and it too will have an eye, followed by a false "all clear", followed by another devastating backblow.
-
This is not a simple storm. This is a complex series of storms. The only storm that has landed full force is subprime. The Pay Options ARMs hurricane is about to hit, or is just hitting now. See Wachovia Still Does Not Understand Pay Option ARM Risk for more details. The eye of the commercial real estate storm is still miles out at sea.
-
Rising Unemployment Will Compound Every Problem
-
Unemployment is a lagging indicator. That fact has been used to suggest the worst is behind. The idea the worst is over is nonsense. The worst cannot be behind until after the hurricanes have landed.
-
Batten down the hatches, the worst is yet to come.
-
Subprime is among the smallest of the storms that will hit. Even still, subprime has dramatically weakened the infrastructure. The economic knockout blow will come from the backside of one of the impending storms.
-
-
35Expand
America: Lying Politicians, Gullible Voters and the Long Slide Ahead | This Can't Be Happening!
Tags: business, china, cities, corporations, corruption, crisis, crooks, currencies, dollar, economy, fed, government, greed, international, junk, national, politicians, usa on 2008-03-10 -All Annotations (0) -About
more fromwww.thiscantbehappening.net
-
America: Lying Politicians, Gullible Voters and the Long Slide Ahead
Mon, 03/10/2008 - 17:51 — dlindorff -
Well, fellow Americans, we are finally going to get our just rewards.
-
That “Almighty Dollar” you used to hear about is heading straight towards the scrap heap of junk currencies (think Ruble, Rupee, Lira, Escudo).
-
Several decades of foolishly voting for charlatan politicians, who assured us we could rule the world as we saw fit with a military whose costs were greater than the rest of the world’s armies combined, and who assured us we didn’t need to pay for our wars and our military might because we could just borrow money to keep the government running, have finally run us up against a wall. Nobody wants to hold those dollar debts anymore.
-
The same is true with the policy of globalization which those same charlatans have sold us, claiming that allowing our industrial base to pick up and move to Asia or Latin America would be a cost-free way of keeping inflation in check by providing us with all our manufactured crap on the cheap.
-
Forget about lost jobs, they told us. You’ll all end up retraining and becoming lawyers and accountants and MBAs scooping up the good new jobs.
-
Forget about a trade deficit, too, they told us. The US, with its brilliant educated workforce, will be providing the world with intellectual products, from our peerless movies and video games to our wonderful high-tech and medical inventions.
-
Now we see that those promises were a joke too.
-
Indian and Chinese scientists and engineers are proving to be just as smart as our own--smarter really, and a hell of a lot cheaper to hire.
-
And the situation only worsens as our bankrupted communities, their tax revenues withering with the collapse of the real estate bubble, and our financially strapped states, their tax revenues battered by rising unemployment and falling incomes, slash funding for public education and for colleges.
-
The jobs are gone, the schools are overcrowded holding pens, the public has run itself into massive debt trying to maintain a semblance of old living standards, the bridges are falling down, the roads are filling with potholes and cracks, fully one percent of the population (mostly people unable to find jobs) is in jail, and the troops are mired off in Iraq and Afghanistan, where they’re blowing through $12 billion a month just trying to stay alive and to stave off defeat.
-
Meanwhile, here at home, we’re watching the price of gas drift upwards towards $4/gallon, as producing countries from Iran to Venezuela, and Saudi Arabia in between, look at their crude stockpiles and think, “Do I want to get paid in greenbacks for this stuff?”
-
Increasingly, they’re thinking, “No. What do they take us for? Chumps? We want Euros.”
-
Over in China, the folks who make everything we use, from car and plane parts to the toys our kids play with and the food we eat, they’re thinking the same thing.
-
When they all eventually decide they’ve had it with the dollar, it will really start to plummet, and no amount of interest rate hiking by the Federal Reserve will be able to make it look attractive enough to hold onto.
-
But wait, the Fed can’t raise interest anyhow! It has to lower interest rates, because the US economy is sinking into a recession. That’s why the Fed has already lowered interest rates to 3 percent.
-
You may not have noticed, because the banks haven’t followed suit by lowering mortgage rates and consumer credit rates.
-
They can’t do that, because they have so many loans going bust they need to keep sucking profits out of the remaining borrowers who so far can still meet their monthly payments.
-
The politicians who lured us into this disaster are now talking about how they will fix everything, but it’s all smoke and mirrors.
-
John McCain may say the US will be stationing troops in Iraq for 100 years, but how’s he planning to pay for that?
-
With a mortgage from an Arizona S&L?
-
Hillary Clinton may say she wants to bring jobs back to Ohio, but who’s going to hire Ohio's workers? (Incentally, the phone Hillary picks up in her infamous "hot-line phone" ad was made in China, and the child in the ad, itself lifted from stock footage taken years ago, was of a girl, now 17, who is today an Obama activist. Talk about being honest with the people...)
-
Barack Obama may say he’s going to ensure that Americans can continue to maintain their lifestyles and afford the things they need, but how does he plan to keep incomes—and the currency itself—afloat? Hope?
-
Face it. The only way to salvage the US economy is for us American voters to admit that we’ve been buying a lie, and that these candidates vying to replace the Liar-in-Chief, and the candidates running for the Congress, are lying to us still, hoping we'll stay gullible.
-
We need to acknowledge that the US is not exceptional, and that it has to be part of the community of nations.
-
We can no longer rule a “new world order” as “the sole surviving superpower.” That way lies the fate of the Roman Empire.
-
We need to bring the troops home—not just from Iraq and Afghanistan, but from all 800 of the places we have them stationed around the globe. We need to make reefs out of our aircraft battle groups, and new forests of our many, many airfields and military bases.
-
We need to put the hundreds of thousands of men and women who unproductively march around in ugly desert uniforms to productive work as teachers, scientists, technicians, builders, healthcare workers and reforestation workers.
-
We need to take the trillion dollars a year we annually blow on the military and start putting it into our education system, our health system, our retirement system and, most critically, into R&D on ways to save the planet from climate disaster.
-
There is probably still time to pull the US out of a permanent dive into third-class nationhood, but not much. Especially if the idiots currently at the wheel are allowed to make things worse by attacking Iran.
-
We can start by demanding that the current candidates for President and Congress stop their lies.
-
None of them can bring about any “change” in America, or rescue the country from its growing crisis, without slashing our absurd military budget, and without ending the con game called “globalization” that is hollowing out the economy.
-
If we don’t demand that kind of honesty of our political class, we have only ourselves to blame for the wreckage that will ensue.
-
If you want to see what it’s going to look like if we continue down our present path, take a trip to Rome and walk through the ruins of the Forum. Those structures went from gleaming marble to piles of bricks in a matter of decades, during which Rome went from the capital of a pan-European empire to a fetid swamp (much like a post-collapse Washington would be).
-
But a word of warning. If you go to Rome, bring a sleeping bag and a lunch pail. Your dollar will not get you a hotel room or pay for lunch at even a run-of-the-mill eatery these days, so plan on camping and eating from the grocery store while there.
-
-
23Expand
Belleville Intelligencer; Predictions Of Diasterous Collapse Of U.S. Economy
Tags: america, collapse, depression, dollar, economics, end-times, experts, finance, great-britain, housing-bubble, international, mortgages, society, usa on 2008-03-07 -All Annotations (0) -About
more fromwww.intelligencer.ca
-
International experts foresee collapse of U.S. economy
-
Harry Koza in the Globe and Mail quotes Bernard Connelly, the global strategist at Banque AIG in London, who claims that the likelihood of a Great Depression is growing by the day.
-
Martin Wolf, celebrated columnist of the U.K.-based Financial Times, cites Dr. Nouriel Roubini of the New York University's Stern School of Business, who, in 12 steps, outlines how the losses of the American financial system will grow to more than $1 trillion - that's one million times $1 million. That amount is equal to all the assets of all American banks.
-
Every day now, thousands of people all over the U.S. and Great Britain are walking away from their homes - simply mailing their house keys to the banks - as housing bailout plans fail.
-
With unemployment growing, the next phase will hit commercial real estate making the financial institutions the unwilling owners not only of quickly depreciating houses, but also of empty strip malls and even larger shopping centres.
-
The next domino to fall will be credit card defaults, and after that... who knows?
-
There are so many exotic funds out there, with trillions of dollars in paper - or rather computer-screen money - all carrying assorted acronyms, and all about to disintegrate into nothingness.
-
Over the next couple of years, scores of banks that have thrived on these devices, based on quickly disappearing equities, will fail.
-
The most frightening forecast so far comes from the Global Europe Anticipation Bulletin (GEAB), available for 200 euros - about $300 - for 16 issues annually. Its prediction is quite specific.
-
Where my warnings never spelled out an exact date, this think tank has it pegged precisely. Here are its very words:
-
"The end of the third quarter of 2008 (thus late September, a mere seven months from now) will be marked by a new tipping point in the unfolding of the global systemic crisis.
-
"At that time indeed, the cumulated impact of the various sequences of the crisis will reach its maximum strength and affect decisively the very heart of the systems concerned, on the front line of which (is) the United States, epicentre of the current crisis.
-
"In the United States, this new tipping point will translate into - get this - a collapse of the real economy, (the) final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the U.S. dollar fall.
-
The collapse of U.S. real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down."
-
The report goes on to say that we are entering a period for which there is no historic precedent. Any comparisons with previous situations in our modern economy are invalid.
-
We are not experiencing a "remake" of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis.
-
What we will have, instead, is truly a global momentous threat - a true turning point affecting the entire planet and questioning the very foundations of the international system upon which the world was organized in the last decades.
-
The report emphasizes that it is, first and foremost, in the United States where this historic happening is taking an unprecedented shape (the authors call it "Very Great U.S. Depression").
-
It continues to predict that, although this crucial event is global, it will be the beginning of an economic 'decoupling' between the U.S. and the rest of the world.
-
However, non 'decoupled' economies will be dragged down the U.S. negative spiral.
-
Concerning stock markets, the GEAB anticipates that international stocks would plummet by 40 to 80 per cent depending where in the world they are located, all affected in the course of the year 2008 by the collapse of the real economy in the U.S. by the end of summer.
-
The European authors of this report - it appears simultaneously in French, German and English - state that they simply and without prejudice try to describe in advance the consequences of the ominous trends at play in this 21st-century world, and to share these with their readers, so that they can take the proper means to protect themselves from the most negative effects.
-
So there you have it. Three reports from three different sources, all well regarded, and all pointing to a disastrous fall-out from our monetary moves.
-
-
47Expand
America: Bankruptcy and Loss of Liberty
Tags: america, americans, bankrupt, banks, congress, crisis, economy, fraud, government, insolvent, middle-class, politics, power-elite, united-states, us-government, usa on 2008-02-25 -All Annotations (0) -About
more fromwww.borderfirereport.net
-
A Crisis in Democracy: Are We Going Bankrupt?
By John W. Whitehead -
Thursday, 21 February 2008
-
“Our country is insolvent, and bankruptcy will come.”
—Congressman Ron Paul (R-Tex.) -
I’ve never seen our country in worse shape—culturally, constitutionally or financially. Marriages and families are falling apart, our liberties are being eroded and the U.S. economy is in serious trouble. We are, as author Robert B. Reich noted in a recent New York Times editorial, “totally spent.” All we’re managing to do now is keep our creditors at bay.
-
See John W. Whitehead's Video presentation of A Crisis in Democracy: Are We Going Bankrupt?
Video Link -
The U.S. trade deficit has reached record highs in recent years.
-
Gas prices, which have largely contributed to trade deficit woes, have led to higher prices in transportation and other goods.
-
The bursting of the home price bubble has triggered a crisis in U.S. housing finance.
-
This has led to a sharp spike in foreclosures, as well as heavy losses at major banks, a pull-back in the market for securitized debt and a credit crunch worldwide.
-
With the value of the dollar plummeting worldwide, America is, in effect, now on sale at discount prices to foreign countries.
-
For example, a record $414 billion was invested by foreigners in the U.S. economy in 2007, with much of it coming from sovereign wealth funds, vast pools of money controlled by anti-democratic governments from China to the Middle East.
-
The fact that our nation is nearing bankruptcy has become what David Walker, comptroller general of the United States, calls “the dirty little secret everyone in Washington knows.”
-
Most politicians, says Walker, are aware of the impending financial crisis but reluctant to do anything about it. After all, it is not politically expedient to increase taxes or trim spending, but this is exactly what needs to be done.
-
Walker also argues that health care, a political promise rolling off every candidate’s tongue, is by and large the most prominent issue, five times bigger than Social Security.
-
And Walker calls the 2003 measures that included Medicare prescription drugs “probably the most fiscally irresponsible piece of legislation since the 1960s.” This bill, Walker says, was “eight trillions dollars added to what was already a 15 to $20 trillion under-funding.”
-
Walker, who recently resigned after serving as the government’s chief internal watchdog for a decade, concludes that the nation’s “current standard of living is unsustainable unless some drastic action is taken.”
-
But, as usual, when we leave the problem-solving to the politicians, what we end up with is bigger government, more bureaucracy and a larger federal deficit, which is projected to total $410 billion for 2008. (The national debt, which is the total amount of money owed by the government, is currently estimated to be over $9.2 trillion.)
-
We are living in a house of cards that’s on the verge of crashing around us, and yet most Americans remain oblivious and continue to spend beyond their means.
-
But, as Reich notes, “That era is now coming to an end. Consumers have run out of ways to keep the spending binge going.”
-
Hoping to continue the spending a little longer, Congress passed a $168 billion stimulus plan made up of personal tax rebates and business tax cuts.
-
While some Democrats criticized the plan, fiscal conservatives expressed grave doubts that the measure is too little and will reach consumers and businesses too late.
-
Former congressman Jack Kemp asserts that “rebates haven’t worked in the past…and won’t work in the future,” as they reward past production.
-
Other critics have voiced the concern that such a costly measure merely serves to increase the already burgeoning national deficit.
-
While the nation’s financial woes are grave, a recession will impact more than Americans’ pocketbooks—it will impact our very freedoms. After all, economic security and freedom go hand in hand.
-
In his book, A Free Nation Deep in Debt, James MacDonald, an investment banker, discusses the relationship between democracy and economic development: “Democracy (even in its most partial and imperfect form), is a system in which the citizens control the state. As long as democratic states borrow from their own citizens, their good credit is simply a reflection of the virtual identity of borrower and lender.”
-
Unfortunately, as economist James Galbraith explains, “The American citizenry has lost its pride of place as creditor of the American state.
-
Today, financial intermediaries hold about 37 percent of U.S. public debt; Japan and China, along with other countries, now hold about 30 percent.
-
The proportion of U.S. debt owned directly by Americans has fallen to below 10 percent; in 1945 (when the debt was more than twice as large in relation to GDP as now) citizen-creditors just about held it all.”
-
But that is no longer true, and “for all practical purposes, the venerable marriage between public credit and democratic government, so vital a factor in the history of the world, has been dissolved.”
-
Galbraith concludes: “If MacDonald’s thesis is right, the disappearance of the citizen-creditor forces a question. Can democracy survive when its financial roots have been cut?
-
The scale of public debt is not the issue, but its ownership is.
-
Can a country—whether the United States or any other—be truly democratic if it is in hock to banks and foreigners? ...To put it bluntly, are we still a democracy? And, if not, what would it take to bring democracy back?”
-
We know what must be done.
-
First, we need to elect fiscally responsible representatives with the backbone to resist political pressure to spend what is not there.
-
We also need to stop putting ourselves in hock to foreign banks and nations.
-
And we need to put a stop to the financial hemorrhaging related to the Bush Administration’s war on terror.
-
For example, over the past six years, the U.S. has disbursed to the corrupt government of Pakistan about $80 million monthly, or roughly $1 billion a year. Yet according to the Washington Post, few receipts are provided to account for how the money is used or where it ends up.
-
That’s just the tip of the iceberg when one considers that we spend at least $1 billion a week in Iraq on military operations alone. Just imagine how those dollars could be put to use in our own ailing economy.
-
Second, we need to show some personal discipline.
-
This will mean reining in our binge spending, nationally and individually.
-
It will also mean getting back to work. We need to bring the manufacturing jobs back to the United States and re-inject ourselves into the economy, even if it means Americans taking on jobs that are usually done by illegal immigrants.
-
Finally, we need to do a better job of protecting our freedoms.
-
This means resisting the government’s attempt to amass greater authority and centralize power in the executive branch. It also means electing representatives who will abide by their oath of office to protect and defend the Constitution.
-
If we value our freedoms at all, we have to sober up—and fast—or we will certainly find ourselves facing an even more dangerous crisis in democracy.
-
Yet beware: this will not be a sudden coup but a gradual transformation into a more authoritarian regime.
-
As former presidential advisor Bertram Gross points out in his book, Friendly Fascism: “Anyone looking for black shirts, mass parties, or men on horseback will miss the telltale clues of creeping fascism. In America, it would be supermodern and multi-ethnic—as American as Madison Avenue, executive luncheons, credit cards, and apple pie. It would be fascism with a smile.”
-
Constitutional attorney and author John W. Whitehead is founder and president of The Rutherford Institute. He can be contacted at
<script language="JavaScript" type="text/javascript">
<!--
var prefix = 'ma' + 'il' + 'to';
var path = 'hr' + 'ef' + '=';
var addy98776 = 'johnw' + '@';
addy98776 = addy98776 + 'rutherford' + '.' + 'org' + '.' + '';
document.write( '<a ' + path + '\'' + prefix + ':' + addy98776 + '\'>' );
document.write( addy98776 );
document.write( '<\/a>' );
//-->\n </script>johnw@rutherford.org.
-
-
85Expand
U.S. Credit Markets Collapsing!
Tags: ambac, americans, bail-outs, banks, bond-insurers, casualty, collapse, credit, default, fgic, financial-guarantee-insurance, governor, insurance, mbia, moodys, mortgage, muncipal, new-york, poverty, property, rating, triple-a, us-government, us-treasury, wealth on 2008-02-19 -All Annotations (0) -About
more fromwww.moneyandmarkets.com
-
U.S. Credit Markets Collapsing!
by
Martin D. Weiss, Ph.D.
02-18-08 -
The U.S. credit markets, the giant growth engine that powers the American economy, are collapsing ... with few credit sectors spared from damage, few investors escaping losses, and little hope of federal action that's quick or strong enough to make a major difference.
-
Here's what's happening ...
First and Foremost, the Fall of
The Nation's Three Largest
Bond Insurers Is Accelerating -
This is the "Great Ratings Debacle" I highlighted last year.
-
And now, the critical watershed event that I said would trigger the next phase — the collapse of the bond insurers' triple-A ratings — is here in aces and spades.
-
Without the triple-A rating, their whole reason to exist falls by the wayside: They cannot enhance the credit of bond issuers. They cannot do more business. They may as well close their doors and go home.
-
The facts:
-
Financial Guarantee Insurance Co. (FGIC), the nation's third largest, just lost its triple-A rating last week. Moody's literally gutted its rating by a full six notches in one fell swoop.
-
At the same time, Moody's warned that unless FGIC can raise the needed capital, it's ready to cut FGIC's rating to a hair above junk.
-
To underscore that it means business, Moody's has already downgraded FGIC's senior debt to junk, threatening to drop it to deeper junk.
-
Ambac's triple-A rating was zapped by all three major rating agencies in late January.
-
Next, MBIA is on the chopping block, slated to lose its triple-A rating within a matter of days.
-
All three of the largest bond insurers are engulfed in the mess.
-
And all three are trapped between two major business lines — their traditional business of insuring municipal bonds against default, which is supposedly still stable ... and their newer business of insuring mortgage- and debt-backed securities, which is in total disarray.
-
Meanwhile, the nation's banks and other big investors — the last hope for bond insurers — have so far failed to come forward with the needed capital.
-
So, in a surprise announcement on Friday, New York Governor Eliot Spitzer threatened to intervene with massive, radical action.
-
He said he would ...
- take over the two bond insurers which are regulated by New York State — MBIA and Ambac ...
- strip out all their supposedly good assets (insurance policies covering municipal securities) ...
- pack away those assets in newly formed separate companies, and ...
- leave behind strictly the bad assets (polices covering the disaster-plagued mortgage and debt sectors).
- take over the two bond insurers which are regulated by New York State — MBIA and Ambac ...
-
The bankers were shocked and dismayed. Instead of being the first to hear the news as part of their intense, ongoing discussions with New York State regulators, they heard about it on CNBC.
-
And instead of responding with fear and remorse, their primary reaction is anger and rebellion.
-
What's next?
-
Follow along with me, and you'll see that, like four different pathways engulfed by the same forest fire, all four likely scenarios lead to essentially the same result: Credit collapse.
-
Scenario A
Bank Rescue -
Despite their instincts not to get dragged into the morass, bankers and other investors come through with 11th-hour capital infusions for the bond insurers.
-
Consequences: The banks take a big step closer to insolvency, creating an even broader threat to the financial system.
-
Reason: The true liabilities of the bond insurers are incalculable.
-
And before the bond insurance crisis, the banks were already buckling under their subprime mortgage losses.
-
Scenario B
No Rescues, No Takeovers -
The banks stay out. But despite his warnings, Spitzer fails to move forward promptly to take over the bond insurers.
-
Consequences:The current downward spiral of the bond insurers continues unabated.
-
The $2.6 trillion municipal bond market virtually dies.
-
Reason: When the bond insurers are downgraded, the hundreds of thousands of municipal bonds they cover are automatically downgraded — a ratings collapse that's so massive, it can shut off the credit spigot to all city and state governments, whether insured or not.
-
Scenario C
New York State Takes Over -
Spitzer acts this week to take over MBIA and Ambac, promptly splitting them in half and creating new companies for each. According to plan, the pre-existing bond insurers are stuck holding the sick insurance business; the new companies get the supposedly healthy insurance business.
-
Consequences: The existing bond insurers are immediately downgraded to deep junk, and that's generous. By all reasonable measures, they are insolvent from day one. And any floating ships still remaining in the market for mortgage- and debt-backed securities are sunk.
-
Meanwhile, local governments are the winners. But it's a pyrrhic victory.
-
Reason: The municipal bond market isn't in trouble just because of what's happening to the bond insurers. It's also in trouble because municipal governments all over the country are suffering falling property values — and falling property tax revenues.
-
By sacrificing mortgage securities for the sake of protecting municipal securities, Spitzer doesn't do local governments any long-term favors. They depend on a healthy mortgage and real estate market to sustain their own finances. When mortgages and real estate go down, so do they.
-
Scenario D
Federal Bailout -
The federal government steps in to bail out the bond insurers — either with or without the plan Spitzer's proposing. The hope is that the good credit of the U.S. Treasury uplifts the bad credit of the insurers.
-
Consequences: Precisely the opposite happens. The bad credit of the bond insurers — and their boundless exposure to defaulting mortgages — drags down the good credit of the U.S. Treasury.
-
Treasury notes and bonds fall in price, while their yields rise.
-
And since 10-year Treasury-note yields are closely tied to the rates on 30-year fixed mortgages, rather than supporting the housing market, the federal government inadvertently drives it into a deeper hole with a spike in interest rates.
-
Reason: The sheer volume of mortgages outstanding in America is far bigger than the volume of U.S. Treasuries.
-
Moreover, with $150 billion being spent on the economic stimulus package, with inevitably huge federal deficits in a recession, and with looming seas of red ink in Medicare ... the U.S. Treasury Department's long-term credit is not exactly fool-proof.
-
Bottom line: There's no scenario that ends in a soft landing for the bond insurers. The underlying assets are rotten. The credit markets are sour. And no type of bailout — public or private — can cover up the stench.
-
Meanwhile ...
At Least Five More
Credit Market Sectors
Are Now Collapsing -
You've no doubt heard about the disasters in subprime mortgages, Alt-A (intermediate quality) mortgages, prime mortgages, credit cards, auto loans and student loans.
-
Now, brace yourself for five more credit sectors that are falling victim to collapse:
-
The nation's largest mortgage insurers — responsible for protecting lenders and investors from defaults on millions of homes — are being ravaged by losses.
-
Municipalities, public hospitals and other institutions have been slammed by the failure of nearly 1,000 auctions for their "auction-rate" securities. Their borrowing costs have tripled and quadrupled — to 15%, 20%, even 30%. Survival money is drying up.
-
Low-rated corporate bonds, which had fueled a wave of leveraged corporate buyouts in recent years, are being aban
-