Over the weekend word began to leak out about a report from Europe predicting losses at financial companies would be twice as large as many had predicted and far larger than have been declared by banks and securities firms so far. In April the IMF had estimated that world wide losses from mortgages and other debt would amount to $1 trillion. The new report, which turns out to have been based on a confidential memorandum from Bridgewater Associates, put that losses at half again as high, $1.5 trillion. To put this in perspective, that would mean that we're only about one-third of the way down.
The German language newspaper SonntagsZeitung said there will probably be a financial "avalanche" of distresses debt securities. It warned that financial institutions may not be able to raise enough capital to cover the losses. In other words, we should be ready to see at least one more bank or brokerage collapse. At least one.
Brisante Studie: Die Bankenkrise wird noch viel schlimmer [SonntagsZeitung]
Banking Crisis May Cause $1.6 Trillion in Losses, Sonntags Says [Bloomberg]
Posted by guest , Jul 07, 2008 8:43AM
At least someone is telling the truth.
Posted by guest , Jul 07, 2008 8:55AM
Or maybe Ray Dalio is the current incarnation of Bill Gross...Dow 5000.
Posted by guest , Jul 07, 2008 9:22AM
Everything is fine. Bear Stearns still exists. We are awash in liquidity. This is all just media spin. The economy is growing. World peace is coming to the Middle East. We can change. Obama 2008.
Posted by lift all the offers , Jul 07, 2008 9:28AM
What we need is a new bubble to re-inflate the economy. How about alternative energy? Solar, wind, and geothermal are wonderously speculative. With the right amount of production tax credits, we can do it!
Posted by diablo , Jul 07, 2008 9:44AM
We already have a new bubble in commodities so we don't need a new one. Except this one causes inflation in so many ways, so it defeats itself.
Posted by Anal_yst , Jul 07, 2008 10:03AM
Wheres the conspiracy theorists that bridgewater has massive short financial bets and "leaked" this "report" on purpose? Man, weaksauce from all the weirdos today
Posted by guest , Jul 07, 2008 10:26AM
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Posted by diablo , Jul 07, 2008 10:33AM
How soon people forget. Back in November Hartzius from GS was warning:
"Jan Hatzius, chief economist at Goldman Sachs in New York, wrote an ominous report dated Thursday, saying the subprime-induced deterioration of global credit markets will force financial institutions to cut lending by $2 trillion, in effect bringing the risk of a "substantial recession" in the U.S. Hatzius said a back-of-the-envelope calculation of U.S. home foreclosure related losses could be as high as $400 billion for financial companies. Furthermore, the fallout may be amplified tenfold due to leverage, thus the $2 trillion figure based on a "conservative estimate" of losses of $200B. "The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized. It is easy to see how such a shock could produce a substantial recession [or] a long period of very sluggish growth," said Hatzius. The $2 trillion lending reduction is said to be equal to 7% of total U.S. household, corporate and government debt. Financial companies have already written down over $50B of subprime-related losses."
http://seekingalpha.com/article/54542-goldman-economist-sees-2-trillion-subprime-impact-on-lending
Posted by lift all the offers , Jul 07, 2008 12:39PM
Speaking of commodities, why is it that Platts has barred Lehman from trading in the daily price-setting window for crude and oil products?
Posted by guest , Jul 07, 2008 10:26PM
Just bear in mind that there are still $5 trillion of these secruitized rubbish in the market that will have to go back to the balance sheets of the banks that originated them.
Most (99%) banks cannot take these back onto their books. There will have to be a concerted bail-out by central banks around the world. Banks will not be able to function under this strain.
Banks that cannot raise capital to keep themselves afloat will be allowed to fail or get taken over. The government will once again play a dominant role in the banking system.
Governments will also bail out struggling homeowners (only the owner-occupied stuffs) by buying their bad loans from banks financed with government long bonds. All these bad loans will go to an Asset Management Company (AMC). The objective of this is to give some breathing space to banks and Joe Public and also to stop the crisis to worsen.
But the ultimate irony is that these bad loans sitting with the AMC's will be securitized, wrapped and sold by the government agencies and AMC's once things get better.