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Economics business.The Sub-prime Crisis. How bad is it?


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Posted
The point being that this is yet another way that the social classes will become further divergent. Those who have expendible money will now be able to gobble up property like pac-man, and for minimal financial impact to their own wallets. There's a deeper issue at play here regarding intentionality of bad policy decisions for short term individual gains. Like driving down a corporations stock so you can buy a bunch of it before "fixing" the issue that drove it down. Then, after you've acquired a tremendous amount while it was cheap, the prices go back up, and you've done rather well for yourself. All while the lower classes keep struggling just to survive, let alone finally get ahead.
All obvious, and a good reason for people to put the cash together and take the same opportunity instead of all letting a few speculators beat them. The real trouble is just the way the real estate market tends to be. When you say "at 30-40% of their actual value" what is meant by their actual value? Don't just look in the estate agency's windows, without seeing how houses are actually selling. If you ask a million for a shack but no one buys it, is that the shack's actual value? There's a reason why the auctions are being concluded at low prices.

 

By what I've read about the subprime speculators, they don't even need to hold as you conjecture. They sell their acquisitions easily enough to people who've been looking through the real estate agencies and simply don't go to the auctions. Those who bought from the auctions give a slightly better deal and the profit is quick and easy. The less people there are at the auctions and the more of them that buy without going to them, the greater the discrepancy. Just an example of how infallibly market law makes price equal to value.

Posted

The fallout (ripples? sunami?) from this is going all over the world

eg

TOKYO, Nov 9 (Reuters) - Japan's Mizuho Securities, the unlisted brokerage arm of Mizuho Financial Group (8411.T: Quote, Profile, Research), may have suffered as much as 100 billion yen ($889 million) in subprime-related losses, causing a delay in its planned merger with Shinko Securities Co Ltd (8606.T: Quote, Profile, Research), the Nikkei newspaper said on Friday.

Mizuho Sec may see 100 bln subprime loss -paper | Reuters

Barclays shares slump on credit worries

Barclays Capital boss Bob Diamond may need to show the bank's balance sheet.

£77.5m 'golden goodbye' for Merrill chief

Bond insurers may trigger new panic

The music has well and truly stopped

Le Crunch is by no means over

Master of the universe falls back to earth

How Citi failed to keep the crisis at bay

Fed will cut rates to 4pc if necessary

O'Neal trampled underfoot by credit crisis

Dollar weakness not a storm in a tasse de thé

Ian Cowie: The greenback wilts

Above are all links to stories in the British Telegraph HERE:-

Subprime - Telegraph

A lot of US articles here (life is too short)

FT.com / In depth / Global credit squeeze

 

and

Reports from the front seem a little slow to come in (I guess this gives the Directors time to sell their shares first?)

AIG, Morgan Stanley latest to face subprime heat

 

Sponsored by:

MS 53.68, +2.49, +4.9%) was also in focus after the investment bank late Wednesday said it was taking a new $3.7 billion hit to account for exposure to subprime-mortgage securities. The company said it had $12.3 billion of subprime-related exposure on its balance sheet at the end of August. See related story.

. . . Some analysts said the company's exposure to subprime was manageable and, at the least, provides more transparency.

How is 12 billion manageable? That is an awful lot of money

for AIG it was a mere 2.45 Bil

Posted
Yen shock may prompt next wave of market crisis

The global financial system supercharged historically low central bank interest rates in recent years in several ways but there were three powerful injections.

 

One was through repackaging bank loans into securities for sale to a wide range of investors, freeing up bank balance sheets to allow them to lend more. Those markets are now in meltdown after a U.S. mortgage market bust called into question valuations of these complex instruments.

 

The second was via leveraged buyouts by the likes of private equity firms, who used cheap credit to raise cash and pumped billions into stock markets via a wave of takeovers. The credit squeeze has put much of this activity on ice.

Yen shock may prompt next wave of market crisis | U.S. | Reuters

Posted

Hi Michaelangelica,

 

I just came across some post modern revisionism on Wiki.

 

Given data about the specific payoffs present in the futures and option contracts, the authors determine that tulip bulb prices in fact hewed closely to what a rational economic model would dictate: "tulip contract prices before, during, and after the 'tulipmania' appear to provide a remarkable illustration of market efficiency."

 

But the tulip mania started around 1623 (when a single bulb could cost 1000 florins) and ended in 1637, running for a total period of 14 years. The South Sea bubble went from 1711 to 1720, a total of 9 years for another major bubble (as a percentage of all money traded).

 

I think the politicians realised that their 'buddies' could surf the ever continuing and increasing rate of new waves of bubbles, jumping from the top of one before it got stale, onto another waiting for new suckers, continuing to tip a part of their ill gotten gains into the packets of their benefactors all along the way.

Posted

tulips?

Tip toe ing?

 

Ben Bernanke Tells US Congress That Subprime Crisis Will Get Worse

Posted by Dan Denning on Nov 9th, 2007

 

Yesterday we mentioned the possibility of synchronous recessions/crashes in China and the US. It’s worth mentioning again. It’s the biggest objection to buying into the resource bull at these prices.

 

On that score, US Fed Chairman Ben Bernanke fronted the US Congress yesterday and told them that the subprime problem would get worse. But traders are learning to quickly discount what the Fed chief says. “Bernanke’s comment that the subprime mess could be in the US$150 billion ballpark exacerbated the sell-off. Why should we believe him? He didn’t see any of it coming,” said Elliot Spar of Stifel, Nicolaus & Co.

 

The Fed is spinning the story anyway. What’s going on in the credit markets is no longer just a subprime story. It’s a corporate debt story too. It’s a bank asset quality story. And it’s a story about the health and viability of the balance sheets of some of America’s largest financial firms.

 

Markets generally muddle through even the worst of situations. But as the Austrian theory of the credit cycle suggests, massive misallocations of capital have to be liquidated before the next bullish phase can begin. Right now, investors seem to be in full denial that liquidation is necessary and healthy. Acceptance will come eventually, after anger and grief.

Ben Bernanke Tells US Congress That Subprime Crisis Will Get Worse

 

The worst of the subprime crisis may not be over

By Sameera Anand | 14 November 2007

 

Howard Marks and William Kerins from Oaktree Capital discuss the firm's global investment strategy and explain why subprime contagion could still spread.

 

“If we avoid the losers, the winners take care of themselves,” says Howard Marks, chairman of Oaktree Capital Management, describing the firm’s motto. Marks is categorical that an investment management firm needs to stand for something other than amassing assets, thus Oaktree’s focus is on avoiding ...

The worst of the subprime crisis may not be over - General - FinanceAsia.com - The network for financial decision makers

 

Western Health’s Multi-Million Dollar Losses

 

Losses at Western Health are more extensive than first thought and the Health Minister Daniel Andrews continues to fail to reveal the full extent of potential future losses.

 

“The annual report released last week revealed Western Health, which includes Western, Williamstown and Sunshine hospitals, recorded a $10.7 million deficit, a significant loss from a $5 million surplus in 2005/06,” said Helen Shardey, Shadow Health Minister.

 

“A $2 million loss by Western Health in the subprime crisis was also revealed, on which the Auditor-General signed off on 17 August 2007, adding further pressure to precious hospitals resource.

. . .

“The Brumby Government and the Health Minister must be held accountable for funds lost on the high risk offshore subprime market. This is money which could have been used to pay for resources and staff across the already stretched Western Health system, but instead the government chose to stake it on high risk, secret investments.

 

“The Victorian Government currently provides the lowest level of per capita funding to public hospitals, it spends the least per head of population on hospitals and has the fewest number of beds per head compared to all the other state and territories, yet it is willing to gamble with hospital funds,” said Mrs Shardey.

2007 November

 

 

Commonwealth Bank ready to lift interest rates

By AAP and staff writers

November 22, 2007 10:36am

P

 

THE Commonwealth (sic) Bank is ready to lift interest rates on variable home loans again, saying higher funding costs caused by the US mortgage crisis need to be passed on to customers.

Commonwealth Bank ready to lift interest rates | NEWS.com.au Business

 

In a further sign that the US housing sector could be in for more pain, Treasury secretary Henry Paulson said the number of US home-loan defaults could be "significantly bigger'' than originally thought.

 

"This is not business as usual. This is an extraordinary situation,'' Mr Paulson told the Wall Street Journal.

 

Mr Horner said the comments show "just how serious the issues are in the US housing market and how difficult they are going to be to resolve.

 

"It's not a situation that's going to turn around anytime soon and that's going to make it hard for risk appetites to strongly bounce while that remains the focus,'' Mr Horner said.

Australian dollar falls below US87 cents | Mercury - The Voice of Tasmania

Posted
Tip toe ing?

 

Hi Michaelangelica, Tiny Tim would be pleased.

 

I suppose it just goes to show that perceptions aren't everything, eventually reality comes knocking at your front (or back) door.

 

The old Aussie saying 'may your emus eggs come home to roost and kick your dunny door down' puts it succinctly, ignorance only breeds further ignorance and undesireable consequences, when you ignore the real problems.

Posted

We live in interesting times.

Where has all the money gone?

Dubai?

China?

Abu Dhabi?

India?

Parked Offshore?

You could write a good thriller or conspiracy theory on Arab/islamic Economic Imperialism with all this couldn't you?

Of course they learnt from the masters of this type of war- the USA.

#

ZURICH (Reuters) - Shares in Swiss-based bank UBS AG powered higher on Wednesday on speculation that Asian or Gulf-based investors may target European banks whose stock has weakened in the wake of the subprime crisis.

 

Citigroup to sell $7.5 billion stake to Abu Dhabi Reuters - Tue Nov 27, 4:16 PM ET

 

NEW YORK/DUBAI (Reuters) - Citigroup Inc is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and a search for a new chief executive.

Citigroup board spurns Bank America overture: report Reuters - 1 hour, 23 minutes ago

 

NEW YORK (Reuters) - Citigroup Inc got a call from a prominent investment banker suggesting a merger with Bank of America Corp as it was dealing with billions of dollars in mortgage-related losses and the departure of Chief Executive Charles Prince, the Wall Street Journal reported Wednesday in its online edition.

 

 

CHICAGO (Reuters) - Two Federal Reserve Bank officials hinted strongly on Tuesday that they would not support an interest rate cut in December, contending that the Fed has provided enough insurance against financial turmoil and would risk opening the door to higher inflation.

 

OPEC powers alarmed by oil price, but coy on policy Reuters - Wed Nov 28, 2:09 AM ET

 

SINGAPORE (Reuters) - Top Gulf OPEC officials expressed alarm on Wednesday at oil prices threatening to top $100, but reiterated that markets were well supplied and steered clear of saying whether OPEC would raise output next week.

Most Viewed Business News on Yahoo! News

US

Fed acts to calm jitters, ease pressure on banks as credit crisis deepens - Greg Ip (WSJ)

Ip writing about the comments yesterday that the Fed would extend loans for longer-than-usual terms to dealers.EUROPE

ECB's Noyer said subprime losses are seen around USD 250bln, which is significant but bearable (RTRS)** Noyer urged all the central banks to ensure there is ample liquidity in financial markets to alleviate tensions.

Forums - Ransquawk Overnight News Summary 27/11/07

Bank of China shares skid after Temasek trims stake

By Tony Munroe of Reuters

 

HONG KONG -- Bank of China's shares have fallen as much as 9.4 per cent after Temasek Holdings sold a million stake amid market worries over the lender's exposure to the US subprime mortgage crisis.

Business Spectator - Bank of China shares skid after Temasek trims stake

 

1 Wolseley feels US crunch with 12% crash

(28 November 2007)

 

Wolseley today said profits crashed 12% in the last quarter as the American housing market juddered to a halt

News » Columnists

 

 

3 10m Britons falling into black hole of debt

(28 November 2007)

 

More than ten million adults are facing financial dire straits because they cannot cope with rising mortgage payments and other debts

Companies & markets » Tips and tactics.

 

4 Market report: Wednesday latest

(28 November 2007)

 

11.30: Britain's High Street banks are still having to come to terms with the fallout from the subprime mortgage meltdown as brokers continue to downgrade

 

 

7 Debt wrapped in an enigma

(27 November 2007)

 

The disclosure that HSBC has decided to bail-out two investment funds to the tune of up to £17bn shows how little we know about the commitments of the big financial groups

 

8 Yesterday's trading: Bears feed on credit fears

(27 November 2007)

 

Overweight bears continue to picnic as the sub-prime crisis shows no signs of abating

 

9 Brokers offering 'unaffordable' mortgages

(26 November 2007)

 

Mortgage brokers have been accused of pushing through unaffordable homeloans and implausible earnings information, in a report by the financial watchdog

 

10 HSBC shores up funds with £17bn boost

26 November 2007)

 

Britain's biggest bank today moved to shore up the two structured investment vehicles which it manages by providing them with up to $35bn (£17bn) of liquidity

 

11 Top economist warns of more pain to come

(26 November 2007)

 

Bank of England chief economist Charlie Bean today warned of further pain for banks and other finance houses in the wake of the credit crunch

 

13 Global growth to stall in 2008

(26 November 2007)

 

The turmoil battering financial markets will push global economic growth down to levels last seen in the aftermath of the September 11 terrorist attacks, according to an economic think tank

Financial News, Mortgages, Loans, Savings, Pensions, Market Reports | This is Money

Posted
I just wish I had enough money saved up to buy a whole .

Savings?

What sort of a capitalist are you?

SAVINGS are for the punters not for the capitalists !

As Karl said they are the "opium of the people."

 

If you want something you borrow other people's "savings'

 

An Australian bank has just purchased a US bamk "wiih no sub-prime exposure" (?)

Lets see NAB want to expand and decides to buy into a bank in the US, as it heads into recession, lets hope that Great Western Bancorporation is the very best of a good bunch, right next to the rotten ones.

NAB buys US bank - Global House Price Crash Forum

 

Bush’s Twenty-Billion Dollar Arms Sale to Saudi Arabia:

Saudi Arabia is the most reliable and biggest single supplier of petroleum to the US world-wide

and will keep trading now in UD$s?

Bush’s Twenty-Billion Dollar Arms Sale to Saudi Arabia:

can the USA pay its bills?

32 million tax refunds could be delayed

If there is a delay and it extends into mid-February, it would slow nearly 32 million refunds worth a total of about $87 billion, the IRS Oversight Board predicts.

. . .

On Nov. 9, House Democrats pushed through a one-year "patch" to shield 21 million taxpayers from about $50 billion in higher taxes due to the AMT. The bill included an additional $30 billion in tax relief measures such as expanding the child tax credit and extending numerous about-to-expire tax breaks for education costs, small business and military personnel.

 

But, honoring their pledge not to pass legislation that adds to the federal deficit, Democrats voted to increase taxes by $80 billion in other areas, including for investment fund managers. Tax-adverse Republicans voted unanimously against the bill and Bush said he would veto any bill that included a tax increase.

32 million tax refunds could be delayed - USATODAY.com

Very strange explanation please??

Posted
Is this any good?

Four Corners: Mortgage Meltdown - Video on Demand

 

I note in today's news Bush has frozen Sup-prime mortgage rates.

Is this a good or a bad thing?

 

No, he hasn't. There is no 'freeze' although he has 'recommended' that the lenders work out deals with subprime borrowers that fit the following stipulations:

 

They have made all their payments up to this point on time.

They can afford their current interest rate.

They can't afford the rate once it adjusts upwards.

Their loan was taken out between 2005 and 2007 and is due to adjust up between 2008 and 2009.

 

I think there are about 10 borrowers that fit;)

 

Bush has no authority to freeze these rates and any legislation will be dead on arrival in congress. It is just more hot air.

Posted

Yes InfiniteNow good or bad is very realative. if I was being thown out of, what I beleived was "my" house, I would be greateful for a reprieve too.

But is it a reprive?

 

Thanks Zythryn

No authority really? So much for spin! Bush is being reported as a White Knight in the press here.

 

This was an interestingly written article

Housing; Saved Or Sunk?

The numbers of those reported to benefit from this wonderful program, is about as accurate as Bernanke and Greenspan’s statements that housing is not capable of dragging down the economy.

While few will actually be helped, it’s a nice gesture to save even some of those who were purposely thrown under the bus by those who purposely threw them under the bus.

 

Less risky loans are also taking a hit

The fallout from the subprime debacle has been evident overseas as well. London-based Caliber Global Investment lost 53% on U.S. subprime .loans, and is shutting down. Oddo & Cie, a French money manager, is closing three funds totaling $1.37 billion, citing the crisis in U.S. asset backed securities.

 

Australia’s Macquarie Bank announced that its two highly-leveraged high-yield Fortress Investments Funds could lose up to 25% of its investors’ money. Significantly, the funds weren’t directly exposed to U.S. subprime investments, but were impacted by the plunging values of riskier investments in the credit markets.

Comstock Funds

  • 2 weeks later...
Posted
Aspen Group moves to reassure investors

December 18, 2007 - 1:56PM

Commercial property investment firm Aspen Group has moved to reassure investors about its outlook, as its securities succumbed to the fallout in the property sector.

Aspen Group moves to reassure investors - Breaking News - Business - Breaking News

 

Australia Property Trusts' Bond Risk Hits Record on Centro Woes

 

By Patricia Kuo

 

Dec. 18 (Bloomberg) -- The risk of Australian property trusts defaulting on their debt rose to a record after Centro Properties Group, the owner of 700 U.S. shopping malls, said it has difficulty refinancing debt.

. . .

``I wouldn't be surprised to see other small property trusts having problems refinancing their debt as well in the next couple of months, but the big names like Westfield and GPT are suffering mainly from contagion, rather than fundamental problems in their debt profile,'' said . . .

Bloomberg.com: Asia

 

Shopping for trouble By James Kirby

 

Exposure to sub-prime through its US shopping centres has hurt Centro. Now the sector faces 'contagion risk'.

 

PORTFOLIO POINT: The collapse in Centro’s share price shows a lack of investor confidence that threatens other LPTs with US interests.

 

Listed property trusts are suddenly in deep trouble, all of them. With a 76% plunge in the share price of sector leader Centro today (December 17) the contagion risk in this sector is intense.

 

In common with the recent shock decline of home lender Rams, the share price of the Centro group has been decimated due to fears the US credit crisis will make it impossible for the group to trade profitably.

.

Shopping for trouble By James Kirby - Eureka Report

Sub-prime fall-out being monitored: Swan

 

December 18, 2007 - 10:13AM

 

 

Australia's corporate regulators remain "watchful and alert" to lingering fallout from the US sub-prime market crisis, federal Treasurer Wayne Swan says.

 

Mr Swan was responding to Monday's $53 billion stockmarket shakeout, as investors reacted to a local company caught up in the global credit crunch.

 

The stock market dropped 3.5 per cent - the biggest single-day fall in four months and the second biggest since the September 2001 terrorist attacks in the US - and led by a 70 per cent collapse in Centro Properties.

Sub-prime fall-out being monitored: Swan - Breaking News - National - Breaking News

 

 

US subprime ripples hit Australian loans

 

ADELAIDE Bank will tomorrow become the first Australian bank to raise home-loan interest rates because of pressures created by the US subprime crisis as the Federal Government takes a step back from the controversy.

. . .

the RBA could raise rates again as soon as February. In the 12 months to November 30, the inflation gauge rose by 3.6%, the highest year-end inflation figure since March and well above the 3% ceiling of the RBA's target band.

 

Banks "securitise" long-term loans by accumulating them and selling shares in the pool as bonds or other debt securities with short maturity dates. Yields on short-term money have blown out as failing loans in the US have made debt investors wary.

 

As a result, banks have been paying more money just to maintain their loans.

US subprime ripples hit Australian loans | theage.com.au

 

Centro held hostage to global credit crunch

. . .

"Certainly, if you've got any money invested in the property trust sector, you'd be feeling a little bit sick at the moment," Mr James said.

. . .

In May, the company's shares hit a yearly high of more than $10 but today, they are hovering at around just 70 cents per share.

. . .

Centro held hostage to global credit crunch - ABC News (Australian Broadcasting Corporation)

 

Reuters on Centro here

Australia's Centro dives again; contagion unlikely | News | Reuters

 

 

 

Centro held hostage to global credit crunch

  • 4 weeks later...
Posted

People here are getting very nervous with banks putting up interest rates (0.2%)without any Reserve bank prompting. (Almost unheard of).

Australian banks under pressure over US subprime exposure

6 hours ago

SYDNEY (AFP) — Shares in Australia's top banks came under pressure on Thursday after a report put their exposure to the US subprime crisis at one billion dollars (884 million US).

. . .

The newspaper said that the four banks were part of a global syndicate of 40 banks that lent troubled US mortgage group Countrywide Financial 11.5 billion US dollars last year.

AFP: Australian banks under pressure over US subprime exposure

 

 

Sub-prime drama sparks a bank war

John Durie | January 10, 2008

 

THE sub-prime crisis has ignited open warfare among the big Australian banks for the first time since former CBA boss David Murray went on the warpath 14 years ago, chasing market share.

 

Now, his successor Ralph Norris is carrying the same torch. The fact that, in the past week, Australian banks have increased lending rates outside a normal Reserve Bank cycle shows the wheel has turned against the sector.

The banks are only making up some of the shortfall from increased funding costs by increasing lending rates and, in the process, are trying to grab market share to help minimise the costs further.

 

But, even though the latest Australian economic news looks good, the big bear coming out of the closet is not just shrinking margins but an inevitable increase in bad loan reserves, now that everyone has remembered risk comes at a price. Norris is about to launch a major new brand campaign, and his job has been made so much easier by ANZ's government relations bungle over its 20 basis point hike on variable home mortgage rates.

Sub-prime drama sparks a bank war | The Australian

 

Banks, UN warn of impending recession

 

Posted Thu Jan 10, 2008 7:37am AEDT

 

Another big investment company in the US is warning of an impending recession in the American economy, while the United Nations (UN) has warned US economic problems could trigger a world recession.

 

Goldman Sachs says the American housing and credit woes suggest the US economy "is falling into recession".

 

In a research note to. . .

Banks, UN warn of impending recession - ABC News (Australian Broadcasting Corporation)

 

SoI guess there is not much chance of *itybank dropping my credit card interest rate from 19.65%?

 

It would be great, would it not, to be in a business where you could not only increase your prices overnight but also the price of everything you have sold over the last 20 years? The banks have it made.

:(

:twocents::jumpforjoy:

*Sh + tt or merde in French

Posted
The banks have it made.

:shrug:

:twocents::)

*Sh + tt or merde in French

 

Hi Michaelangelica,

 

I heard on the radio the other day that the global financial system doesn't really relate that much to the global economic system. But then what do you call the worlds biggest gambling establishment, that won't close down tables during big runs? (Brave or foolhardy)

 

So the masters of the perpetually expanding (financial) universe are starting to disappear down a black hole of their own making. Dubious foundations for a financial system let alone a basis for true science.

Posted

Yes larie, dubious indeed

Wall Street started the day with Merrill Lynch reporting that it lost $9.8 billion in the fourth quarter, mainly because of booking $15 billion in losses tied to soured home loans.

. . .

Harry Reid of Nevada, was irritated that Mr. Bush had abruptly decided to outline a plan on his own instead of developing a bipartisan package with Democrats. “

http://www.nytimes.com/2008/01/18/business/18fed.html?hp

More tax cuts for the rich?

 

Wealthy may be next in line in US home crisis

Wealthy may be next in line in US home crisis - ABC News (Australian Broadcasting Corporation)

 

Welcome to Citibank

Posted

Seems too be getting worse?

"NYTimes. com News Alert" <[email protected]>

to me

show details

04:12 (16 hours ago)

Breaking News Alert

The New York Times

Monday, January 21, 2008 -- 12:11 PM ET

-----

 

Stock Markets in Europe Plunge 7 Percent

 

Stocks fell steeply in Europe on Monday after sharp overnight

declines in Asia, reacting to fears that an American

recession was unavoidable and would crimp global growth. The

DAX index in Germany closed off 7.16 percent and the CAC 40

in France lost 6.83 percent. British stocks fared slightly

less badly; the FTSE 100 lost 5.48 percent. United States

financial markets are closed today; Canadian and Mexican

stocks were off sharply at midday.

 

Read More:

The New York Times - Breaking News, World News & Multimedia

 

-----

Visit our mobile site for the latest news:

The New York Times

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