Much is made of the borderline between different tiers of debt and, accordingly, statistics that hover around these thresholds tend to be a dire lot. To wit:
Moody's is out with its monthly default report today, finding that defaults among speculative grade borrowers are rising, but are still not very high. It expects defaults to soar next year, with the global rate at or above the peak levels seen in the last two recessions.
It is not that this analysis is daft (well, not solely that) and not that it is from the New York Times, but that it is all these things at once.
Overreaction, or Coming Collapse? [The New York Times via ">Abnormal Returns]
Posted by guest , Nov 12, 2008 5:17PM
We still have at least one major wave of ARM resets coming. Absent major implementation of "the gummint will give you free money so you can stay in your house a while longer" plan, that will cause at least one more cascading failure of any MBS and similar securities that depend on mortgage assets.
Posted by Anal_yst , Nov 12, 2008 5:18PM
Moody's: Fail
NYT Business: Results are getting less-good in a slowly-increasing manner.
Posted by guest , Nov 12, 2008 5:31PM
Moody's sucks. Really. Do their models do anything but follow the trend? Do we really pay for this kind of analysis and insight?
After the ratings debacle that has been the subprime and collateralized world, they should have to publicly disclose their models when giving ratings.
Or there should be recourse against the firms for negligence (ooops - there was an error in our model and we accidentally rated all these things AAA) or fraud (um, and when we figured it out we didn't tell anyone).
Posted by Lowly Assistant , Nov 12, 2008 5:40PM
"disclose their models when giving ratings."
Do you really want Ray McDaniel flying down to D.C. in order to display his cootie catcher? Can't they just forward a video? http://www.youtube.com/watch?v=h-1Ab1U9Wrw
Posted by guest , Nov 12, 2008 5:49PM
We are entering a depression. Time to face reality. Take the word recession out of play and let's call it what it will most certainly be. Look how bad things got before consumer spending fell off a cliff. Now that no one is buying anything the real pain will begin. I wouldn't be surprised to see 20%-25% unemployment and a quarterly GDP print of -8% before 2010 is ushered in.
All that needs to happen is one automaker, one insurance company and one more large bank to bite it.
The level of pessimism is unreal right now. Everyone thinks they are going to lose their job tomorrow...and many of them are right! Who on Earth is going to make a major purchase? Hoard, hoard, hoard is the name of the game.
Deflation is a son of a bitch when you were already hair-high in debt. This will not tickle.
Posted by guest , Nov 12, 2008 5:53PM
Think about this. They had 7 of the largest monolines/financial guarantors rated Aaa in June 2007. Of those 7 only two remain at Aaa and they both have negative outlooks. Do you think Moody's might fess up and admit the monoline model was crap? Hell no! They just need to tweak a few things and the model will be fine. Now they want the market to accept lower rated financial guarantors so it will make the job of rating them easier.
As for the RMBS/CDO stuff, they never got the big picture. If you are part of a process which helped securitize almost ever asset in America, thus providing lots of people with loans they could not afford, wouldn't you feel some shame? Not good ole Moody's.
Just think about how much in Aaa rated debt Moody's has downgraded. They were not the only ones that created the mess we are in, but they sure forgot why they added value to the process and I think the level of reliance on the rating agencies will never be the same.
Posted by guest , Nov 12, 2008 5:57PM
@5, I really hope you are completely wrong, but unfortunately every single sign is pointing to the Big "D". Treasury has pretty much thrown in the towel with the Tarp, with monetary policy having become completely ineffective as both sides of the Fed's balance sheet have become fungible.
We are indeed screwed.
Posted by guest , Nov 12, 2008 6:07PM
@5, If you have cash, buy land and pay it off... learn to garden...
You want to be a dirt owner when they get around to devaluing the pieces of paper we call US Dollars, but are really only backed by the full faith of the Federal Reserve System. That faith is dying every day now.
When we reset and have a new US Government backed bank and new currency, land owners will be the new rich.
Indebted shopaholics will be the poster children of what caused this disaster. The era of 5 dollar hot flavored water is over.
Its time to own dirt, learn to eat unprocessed food and learn how to plant a "victory" garden. I would not want to be stuck in a concrete jungle high rise and expect for my food to be shipped into deli downstairs...
Think of how well we handled Katrina and Rita when we could still afford shit as a nation, now think about a currency crisis in the middle of winter with little or no working debt or credit cards.
Historically, Americans used to have well stocked pantry's... because you never knew when bad luck could strike. I believe the era of having lots of stored food as a buffer for supply disruptions will return.
This shit show is just getting started...
Got popcorn?
Posted by guest , Nov 12, 2008 6:12PM
8 - kindly fuck off back to Calculated Risk, please.
Posted by guest , Nov 12, 2008 6:24PM
@8 - Don't need popcorn dickhead. I'm gonna get me some of that new world currency. Sometime in 2009. Hope it looks better than that Euro shit.
Posted by guest , Nov 12, 2008 6:27PM
@7, I just don't see any way to stop the snowball. Despite good intentions, our government is essentially broke and cannot afford to keep pumping in money. Short of sponsoring country-wide wheelbarrow races or nationalizing the entire economy what can they really do? So long as every company's solution to current troubles is to lay people off, the situation will continue to feed on itself.
Job creation is the key. They don't have to be 100k/yr jobs, but people need an income or the whole system implodes. I personally think this bailout money would be better spent feeding small businesses, not huge behemoths. Small business is much more likely to multiply the money than a leaky behemoth.
@5
Posted by guest , Nov 12, 2008 6:43PM
It's only a depression if you're unemployed. Otherwise, a just another recession.
@11. The key is keeping the 50% of the population that are semi-psychotic dumb-asses from rioting in - or near – my (maybe our) neighborhood. In the `30's they were able to ship all these people to some god-fer-saken hell and they'd build a dam - or something else to keep their testosterone levels under control. But today, the ONLY thing you can do is move to New Zealand and hope for the best.
Good luck everybody.
Posted by guest , Nov 12, 2008 6:51PM
I agree with 12. Move to Middle Earth, hire Uruks and Nazgul to keep unemployed hordes away.
Posted by guest , Nov 12, 2008 8:13PM
I admire all of the Depression talk and I do think things are majorly fucked but there is a way out of this - inflation - and it's coming, boys.
The Fed has been draining cash from the banking system every time they hand out money. Once that stops, there will be cash sloshing around everywhere. A little 5-10% annual inflation and all of those underwater homes are going to be peeking above the waves.
Everyone suckered into holding Treasuries or with their cash sitting in a checking account is going to see the real value of that money drop 5% a year.
It ain't gonna be pretty. Yes, buying hard assets - especially dirt land - is a great idea right about now.
Posted by guest , Nov 13, 2008 7:12AM
Moody's default prediction has never, ever been close to ballpark. Yet every month it gets reported as if its important.
Posted by guest , Nov 13, 2008 7:23AM
Too subtle by half. Thanks for wasting my time EP.
Posted by guest , Nov 13, 2008 10:42AM
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true