The Credit Crunch – In 2008 The Worst May Keep Getting Worse

[FRED]

Jim Nickerson posted this on another thread. Das is an expert in derivatives, the author of several books on the subject. The Risk Pollution just keeps oozing out of the ground around the world.

The Credit Crunch – In 2008 The Worst May Keep Getting Worse
March 2, 2008 (Euro Intelligence - Satyajit Das)

2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."

The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.

Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.

As America’s mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown. more...

[rtchoke]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

March 3, eh?

[FRED]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

March 3, eh?

They are WAY ahead of us in Europe. It's already March!

[santafe2]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

March 3, eh?

European date format most likely, February, 3 in US lingo. We run into this at work as our European associates are sometimes asking for meetings, etc. in this format. We've all learned to change to year/month/day in our requests. There's an ISO standard for this as if anyone will pay attention to it in my lifetime.

[Jim Nickerson]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

Jim Nickerson posted this on another thread. Das is an expert in derivatives, the author of several books on the subject. The Risk Pollution just keeps oozing out of the ground around the world.

The Credit Crunch – In 2008 The Worst May Keep Getting Worse

March 3, 2008 (Euro Intelligence - Satyajit Das)

2007 may come to associated with the start of the "big" credit crunch. 2008 has begun with a number of "unresolved" items. Hope of an early resolution seems to be fading. In the words of Lily Tomlin, the American comedian: "Things are going to get a lot worse before they are going to get worse."

The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.

Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008. Interest rates and repayments will rise significantly. The impact on delinquencies and losses are unknown. The rate reset freeze plan (which has not been in the news since being announced) and its impact are also still unclear.

As America’s mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA. Analysis by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined US$1.5 trillion in high-interest-rate, high risk loans. The potential losses on these loans are unknown. more...

No, Fred, goprisko (INDY) originally posted it without a link, and his post was dated yesterday--2/15/08. I looked for a link and found one in which it is dated 03/02/08--but that is Euopean date form. Then you reposted it with a date of March 3, 2008. Such confusion points out, to me at least, the value of posters going to the trouble to put up their links when they copy and paste materials from other sites.

original post by INDY

[metalman]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

No, Fred, goprisko (INDY) originally posted it without a link, and his post was dated yesterday--2/15/08. I looked for a link and found one in which it is dated 03/02/08--but that is Euopean date form. Then you reposted it with a date of March 3, 2008. Such confusion points out, to me at least, the value of posters going to the trouble to put up their links when they copy and paste materials from other sites.

the euros use the day/mo/yr format and fred took it for mo/day/yr, i figure. or not and he's ******* with us... not the first time. who cares about the date? close enough... not like he's doing a timing thing.

anyway, what do you think of the story? this credit crunch is not intuitive to me. i suppose it means that things bought with borrowed money will see less demand. houses, cars, etc... the gummit will pour money into the banks. but will that work? then there's the thailand notes factor... the dollar falling. you can afford domestic but not imported goods. like gasoline :eek:

[Jim Nickerson]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

the euros use the day/mo/yr format and fred took it for mo/day/yr, i figure. or not and he's ******* with us... not the first time. who cares about the date? close enough... not like he's doing a timing thing.

anyway, what do you think of the story? this credit crunch is not intuitive to me. i suppose it means that things bought with borrowed money will see less demand. houses, cars, etc... the gummit will pour money into the banks. but will that work? then there's the thailand notes factor... the dollar falling. you can afford domestic but not imported goods. like gasoline :eek:

What I think is that no one knows squat with regard to timing of all this, though it is closer to the denouement, but who know how close? I've sort of given up thinking it will be soon--meaning weeks or several months.

I am led to believe Das is a genius at comprehending all this stuff, so he is someone to whom it is well worth paying attention.

Why it has happened has probably been explained here somewhere, but it is notable that the price/gallon of gasoline has not increased linearly with the price of oil. There was a decoupling, perhaps that will continue to be the case unless taxes are raised.

[Jim Nickerson]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

Credit Suisse CEO sees credit crisis nadir in months Sat Feb 16, 11:28 AM ET http://news.yahoo.com/s/nm/20080216/...ditsuisse_dc_1

Meanwhile the mistrust between banks that has led money and credit markets to seize up was dissipating.

"Liquidity has generally improved somewhat. That's an important sign," he said. "Although markets are still far from normal, a modest recovery can be detected. The trend is now in the right direction."

Credit Suisse has suffered only limited fall-out from the subprime mortgage crisis, trimming full-year 2007 write-downs linked to the debacle to 2.0 billion Swiss francs ($1.83 billion) and pulling in billions in new investments from wealthy clients.

Its Swiss rival UBS (UBSN.VX) on the other hand has been one of the worst hit, taking $18 billion of charges in 2007 and warning of more to come that could tip it into a second year of losses.

Dougan said he expected banks damaged by the crisis to lose wealth management customers, while better positioned institutions would pick them up.

Unlike other banks, Credit Suisse is not shedding investment banking staff, but is reallocating resources.

Thus it is expanding its commodities business and involvement in emerging markets while scaling back areas hit by the crisis such as mortgage securitization, structured products and high-yield financing for takeovers and buyouts, he said.

Dougan acknowledged there was a risk of a commodities bubble.
"But we think that it has great potential. Even if prices contract after the long rally, increased earnings are possible in commodities," he said.

I don't know that I believe any of these dudes, but perhaps he is telling a truth. If it is correct that that Credit Suisse is not firing people, then perhaps his "money is where his mouth is."

[santafe2]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

I like Das but this article is a shotgun at 200 yards. I'm sure these are ideas he's working through for a new book, but not many are well focused. I've cut out a few pieces I think matter.

Interest rates on large volumes of sub-prime mortgages – estimated at around US$ 900 billion are due to reset by end 2008.

The metrics of this have been well covered here. Most regular readers will know that the storm has not yet hit land. Das is not opening new territory here but no one should take this lightly.

Credit card providers are all boosting loan loss provisions.

This seems obvious to me but worth noting. If lenders were focused on no down/no doc loans, these are the credit ponies they found in the corral. Others here have posted references to the underwater mortgage walk away. Not behind in payments, it just doesn't make economic sense to keep paying. This may happen in spades in the credit card market.

There are already signs that the major banks are hoarding liquidity in anticipation of the return of assets.

Yup, the boys are having a come to Jesus meeting. There will be more than a few mid size banks that will fail in 2008-2009. The big five have plenty of blue and red friends but the mids are all in place to only stand as examples. The worst performers will be put to the whipping post. Most likely Nevada, Arizona maybe a bank or two in California. If you think we're really much different than the people in Salem drowning "witches", give it a few more years. This is going to be ugly.

[Verrocchio]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

The total level of sub-prime losses is still far from clear. Based on current trading levels of ABS indices, estimates of losses range between US$ 150 and 400 billion, not all of which has been written off to date.

As America’s mortgage markets began unravelling, economists initially pointed to sub-prime mortgages issued to low-income, minority and urban borrowers. Closer analysis reveals risky mortgages in nearly every corner of the USA.

The Subprime Disaster and We Got There

Sample dialogue from the office of Ace Mortgage Brokers (motto: We Make Your Dreams Come True):

"Gee, I'd like to buy a house but I haven't saved any money for a downpayment and I don't think I can afford the monthly payments. Can you help me?"

"Sure! Since the value of your house will always go up, we don't need downpayments anymore!"

[barrydd933]

Re: The Credit Crunch – In 2008 The Worst May Keep Getting Worse

Subprime disaster cartoon is totally not to scale!!!Bankers and Brokers should have been drawn as the fat,greedy b****stards they are!Not stick figures!LOL