"Emancipate yourself from mental slavery, none but ourselves can free our mind.” - Bob Marley

Wednesday, August 20, 2008

Latest Dose of Doom

Michael Panzner finds some (nearly or "morely") as pessimistic Nouriel Roubini in "Credit Crunch May Take Out Large US Bank Warns Former IMF Chief,"

Downward Pressure on Rents - which will increase even more the downward pressure on house prices, both through the rent-or-own decision or the investor willingness to purchase.

Lehman In Deep Trouble - Meredith Whitney famously side-stepped commenting on Lehman - now we see why.

Fannie, Freddie $223 Billion Debt Rollover Problem

Money quotes:

Investors this week demanded an extra 104 basis points in yield to own Freddie's five-year debt rather than Treasuries of similar maturity, the most since reaching a 10-year high of 114 basis points in March

Fannie spreads approached a 10-year high of 104 basis points on Aug. 18,

[Hank] Paulson has virtually zero credibility at this point, on the dollar, on Fannie, on anything.

$233 Billion is a an enormous amount of debt to have roll over between now and September 30, especially in this market. And there is a decent chance the bond market chokes on those rollovers.
Nouriel Roubini - The worst economic and financial crisis in decades

This is by far the worst financial crisis since the Great Depression, not as severe as the Great Depression but second only to it.
This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages including hundreds of billions of dollars of home equity loans that are worth little; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%;

And from late June in Not Your Grandma's Depression, James Kunstler ntes that if the economy does take the dirt nap, this country is in many ways far less well prepared than in the 1930s:

We're a very different country than we were in 1932. In that earlier crisis of capital, few people had any money but our society still possessed fantastic resources. We had plenty of everything that our land could provide: a treasure trove of mineral ores and the equipment to refine it all, a wealth of oil and gas still in the ground, and all the rigs needed to get at it, manpower galore (and of a highly disciplined, regimented kind), with fine-tuned factories waiting for orders. We had a railroad system that was the envy of the world.....

Our debt problems today are of a magnitude so extreme that astronomers would be hard pressed to calculate them....

the upshot will be something at least twice as bad as the Great Depression of the 1930s: people with no money in a land with no resources (with manpower that has no discipline), hardly any family farms left, cities that are basket-cases of bottomless need, comatose small towns stripped of their assets and social capital, an aviation industry on the verge of death, and a railroad system that is the laughingstock of the world. Not to mention the mind-boggling liabilities of suburbia and the motoring infrastructure that services it.
I don;t know if he's right about that "at least twice as bad as the Great Depression", but the comparison is sobering.

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About Me

I'm a 57 year old geek. I voted Democratic for 20 years, because I disliked the Republicans more. But now, nobody really speaks for me. I'm for Guns, for more correct government regulation of the financial world, against illegal immigration and amnesty. (in 2008 I ended up voting Republican - too many questions about Obama, and voting against anybody who voted for TARP 1.) In 2010 I voted a stright republican ticket because the Democrats have completely lost their minds.