Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund
This is the latest news to hit the US markets. Of course Bear Stearns has already been palmed off to JP Morgan. In the UK we have had Northern Rock and Alliance and Leicester has an emergency sale of itself to Santander to prevent collapse - just today it has acknowleged that in effect it cannot survive if the sale falls through.
Bradford and Bingley is also only fit to prepare itself for a fire sale.
This is not a good run of events and clearly the weak are already fallen. Now what is being discussed is some of the larger beasts also succumbing to what is effectively financial gout; Bursting with debt and greed they can only stagger to a final fall.
In the US Lehman Brothers was considered just a few weeks ago as in a serious state. It has just put up a big part of its business for sale, scotching the current view that the driving down of its share price was all just speculation.
In the UK the main banks have fallen again today - but could one of the big ones collapse? It is still a distinct possibility. With no more access to the capital markets, the government spent out on Northern Wreck and high costs for bond issuance the banks are very much stuck.
HBOS, RBS, Barclays and Lloyds in that order are under threat. HSBC seems too big to fail but its frankly unfeasible scale of CDO's and other toxic mess could even hurt the biggest beast of all.
But will it happen - I am not sure. What I can see is a third leg to the credit crunch, with a consequent retrenchment from the gains of recent months and so another 'test' for our financial institutions. More will be found wanting if this occurs.
10 comments:
I think the banking crisis is all but over and we are in consumer crisis for the next year or so. UK banks need a healthy consumer in order to fleece him, so core profitability will be unexciting from here; the UK banks are no more a BUY after the toxic writedown cycle is over than the telecoms were in 2002/3 once the valuations reached bottom; this is a long U shaped recovery story rather than a V.
When I hear about a massive US financial institution on the verge of being nationalised, my pants start to change colour.
idle- even conservative estimates suggest $1 trillion needs ot be written off for sub-prime (basically 33% of the debt). So far about half that has been written off.
Therefore it is unlikely that there will not be twists and turns. Furthermore, Prime mortgage owners are increasingly falling into negative equity.
This will not be a V, or a U shape recession, depression.
It will be an L shaped depression to match, at least, 1929/34.
The price of hydrocarbons alone will guarantee that, even if the write-offs clear rapidly, which they won't.
Foreign aversion to T bills will wreck the US economy, and broon has billions on his balance sheet.
It now transpires that since the US stopped publishing M3, US has sold far more T Bills to foreigners, than are shown as held by foreigners. Looks like the Fed has created money from thin air to buy them. (JPMorgan?)
Anyway, if that shoe drops the SWHTF with a great big splash!
And I thought I was gloomy!
I think Bernanke, student of depressions, can chart a course to avoid one. Thank god that the foolish and self-regarding Greenspan is not in charge of the ship.
The loss of an investment bank or two is of no concern. The consumer banks in the US have encouraged me with 2Q earnings.
Idle.
If you look closely at the earnings that encourage you, you will find that the banks posting encouraging results were liars.
The days in default, usually 90, before foreclosure was initiated, were stretched out to 150 days, thereby reducing the requirement for provisions in the P&L. Ergo the profits were overstated by historical norms. Additionally, level 3 assets were still marked to fantasy! Fund raising in the UK is failing, leaving share in the hands of underwriters, - this shows the contempt the street has for bank shares.
It may be that the system is clogged with defaults. One may also wonder when 150 days will become 180, or 210 days.
Either way the balance sheets are toast.
You should be discouraged!
Peak credit has passed.
Peak currency has passed.
Peak oil has passed.
Peak food has passed.
Peak libor has probably not passed.
Referring to unslickers $1Trillion.
It is nearer to $3T., and in the US, there is foni and fraudi bailout to come. Current shareholders are toast. Current bond-holders are under debate. Foreign holders, well......
Residential RE is projected to fall by 30% in UK, cough, I reckon 50% - 60%, over many years. There is NO coherent energy policy in the UK. Putin has control. Fabian cretins, - hang 'em high. broon and scorched earth.
Death of the middle class, death of discretionary spending power.
Eventual standard of living, - - C 1910, and declining because of hydro-carbon costs, - - alternative energy sources too late on the scene!
http://www.marketoracle.co.uk/Article5942.html
http://www.shadowstats.com/
link
In this current situation, - - Stagflation is simply the transition from credit expansion to credit contraction, leading inevitably to deflation.
However, factor in the increasing costs of hydrocarbons in an importing nation like the UK, and factor in the increasing hoarding that will be practiced by the producer nations as their own consumption levels approach their declining output levels, and at a point in time the right hand-extended side of the bell-curve of declining global conventional output will experience a sudden, precipitous, near vertical fall.
Simply put, in the near future there will be economic mayhem.
Massive deflationary credit destruction, from a deliberately calculated fiat over issuance, coupled with increasing fuel, agricultural, commodity (cost of extraction) costs.
How this plays out will be interesting.
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