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Major Bank Crisis?
2007-12-03 07:27:00
The Global European Anticipation Bulletin No.19 of which an abstract is available, outlines some possible scenarios in the world of banking stemming from the unfolding subprime crisis and its siblings the credit crisis etc. "[A]t least one large US financial institution (bank, insurance, investment fund) will file for bankruptcy before February 2008, sparking off bankruptcies among a series of other financial institutions and banks in Europe (in the UK especially), in Asia and in various emerging countries."GEAB N°19 - Contents( Published on November 16,2007)International banks get dragged into financial crisis’ 'blackhole': Four triggering factors of a major financial bankruptcyLEAP/E2020 now estimates that at least one large US financialinstitution (bank, insurance, investment fund) will file for bankruptcy beforeFebruary 2008, sparking off bankruptcies among a series of other financialinstitutions and banks in Europe (in the UK especially), in Asia and in variousemerging cou...
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Rocky Road Ahead for US Taxpayer
2007-11-18 04:53:00
An object lesson for the US taxpayer is being played out in the subprime crisis fallout in the UK. The naive among us can still be found, on blogs and elsewhere, insisting that the measures being put in place by Governments and Central Banks will not cost the ordinary citizen. Developments in Britain are now showing the utter fallacy of this position.It appears that Northern Rock, the British bank which suffered a run earlier this year in fallout from the funny money routine may saddle the UK government with "a bill in excess of £25bn" and calls are being made for the bank to be taken into public ownership. Since the latter action is unthinkable in the US, the alternative is easy enough to figure out. "But now plans to sell the bank are running into a wall of opposition from politicians who are outraged that a sale could involve an open-ended commitment to provide government support to a buyer. 'Why should taxpayers' money be used to help Richard Branson, or whoever eventually ac...
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Global Systemic Crisis - GEAB Update
2007-11-11 08:26:00
The Global European Anticipation Bulletin No.18, Seven sequences of the impact phase of the global systemic crisis (2007-2009), is now available. This publication offers possibly the finest analysis of the big picture of the economic crisis to be found. Although a subscription item, there's an intriguing extract available without charge.Here is the full scope of the current issue:This public announcement provides the full description of the first sequence in addition to the complete list of sequences. Sequence 1 - US debts infect the financial planet: A century after the « Russian loans”, meet the “American debts”! Sequence 2 - Stock market collapse, in Asia and the US mainly: between - 60% and -30% in two years according to the regions Sequence 3 - Bursting of global housing bubbles: UK, Spain, France and emerging countries Sequence 4 - Monetary storm: Volatility at the highest / USD at the lowest Sequence 5 - Global economy in stagflation: Recessflation in the US, soft gro...
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The End of the Beginning
2007-09-29 05:46:00
"Defaulting middle-class U.S. homeowners are blamed, but they are merely a pawn in the game. Those loans were invented so that hedge funds would have high-yield debt to buy." Satyajit Das in an interview with Jon D. Markman, The Credit Crisis Could Be Just BeginningIn what follows I revisit the theme I touched on recently, namely the way in which all the focus of the current credit crisis is being laid at the door of the subprime bubble and by implication on those Americans who entered into one or other of the less than prime mortgages. Let's not forget the hoopla around the spread of home ownership in recent years and the signal it gave that anyone who struggled to get a foot on the home ownership ladder was being a model American. Now there is a definite atmosphere being created that those unfortunate enough to have been on the lowest rung of the ladder are the ones whose 'irresponsibility' has been the cause of tipping the ladder. Let there be no doubt about it that this is a ...

Blame the Victim Rules the Subprime Debacle
2007-08-25 09:04:00
Anyone get the impression as I do that the scene is being set for placing the blame for the economic crisis on those hapless people who were so inconsiderate as to put everyone at risk by actually taking advantage of what they saw as the opportunity to get their piece of the pie? Yes folks, the reason the wheels of high finance are now gumming up is you or your neighbours utter selfishness in wanting a decent roof over the heads of your families. How thoughtless and unpatriotic of you to throw caution to the wind.Max Wolff notes the mindlessness that has become a feature of commentary on the financial crisis where mouthing "subprime" a sufficient number of times seems to absolve anyone from actual analysis. The following from Credit Backwash August 21, 2007 "Every day we watch people blame sub-prime. Sub-prime is neither contained nor, is it the essence of present trouble. Discussing sub-prime as the cause of asset re-pricing has become ubiquitous. I would liken this line of explana...
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Paulson Gives Bottoms Up On Subprime Crisis
2007-05-19 06:26:00
Since Secretary Paulson's remarks on the housing bubble in the Newshour segment for Thursday May 17, Treasury Secretary Discusses Wolfowitz, Chinese Economy , may have been drowned out by more salacious developments in the world of high level banking I give them here:JIM LEHRER: One final question, and a third subject. How worried are you about the slump, so-called slump in the housing market in the United States right now? And what kind of damage, if any, is it doing to the economy?HENRY PAULSON: Well, let me say this. As you've pointed out, we've had a major housing correction in the U.S. The U.S. economy had been growing at a rate that was unsustainable and, in housing, it had clearly been growing at a rate for a number of years.That correction was inevitable; that correction has now been significant. We think it is near the bottom. It will take a while to work its way through the system. Fortunately for us, we have a very diverse, healthy economy. There are other things that ...
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Betting the Bank, and then some.....
2007-05-15 05:49:00
Who hasn't heard stories of inveterate betting men fully alert to the essential truth that everything in life is a wager. It's chilling to think that the progress of the subprime bubble may well depend on the progress of two flies on a window pane, but let's not forget the idea attributed to chaos theory of the connection between the flapping of butterfly wings and the tornado that topples an economy. (A fascinating area in which to see the dissipation of risk based on essentially the same notion is the apparently mundane world of Insurance and Re-Insurance where the losses from disasters are spread in a worldwide market. Mundane until it's recalled that the men in the London coffee-houses were themselves no stiffs when it came to a bet).The wild frenzy of gambling that now grips the world is not only attested to by the 54 million casino visits made by Americans in 2004 to lose more than $78 billion on the turn of a card or the spinning the slots, in effect sophisticated mechani...
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'Too Much Like 1929'
2007-05-13 08:17:00
Bernard Ber, an investment representative with CIBC in Toronto, has published an article that for its superior analysis deserves attention. (This originally appeared in Guest Commentary at PrudentBear.com but at time of writing has gone missing; this may or may not have conspiratorial implications depending on your temperament; I give an alternative link below). The opinion expressed, needless to say, is hardly the official position of the Bank and one wonders to what extent it is a view shared within the corridors. This writer obviously knows all those numbers and concepts on the currency exchanges that give us all such headaches (well, me anyway).Of great interest is the thesis that the relationship between China and the USA today is a replica of that between USA and Britain on the eve of the Great Depression."The two major players in the worldfinancial system at that time were the United States and Great Britain. TheUnited States was the emerging industrial power, whereas Great B...

Margin of Errors
2007-05-08 10:19:00
Having argued in a recent post that the position of homeowners faced with foreclosure on being unable to meet rising mortgage payments coupled with stagnation or housing price decline, ( see Speculation and The Housing Bubble - "The position is no different in essence to that of someone stricken with margin madness in a stock market bubble."), I was gratified to read this take presented in detail in a comment by jm on a thread at Economist's View . The whole comment is reproduced here:The real problem in the housing market isthat people are being allowed to speculate with nearly infinite leverage.In what other market are people asunsophisticated as the average home buyer allowed to make multi-hundred-thousandasset purchases with so little cash up front, and without being adjudged capableof understanding the implications of a margin call -- and more to the point, ofhaving the financial resources to withstand one?As interest rates fell through thelast decade, homes began trading like...
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A New 'New Deal'?
2007-05-02 08:28:00
If the unfolding contagion of the subprime crisis really has the potential to precipitate, (in the awkward translation of the Global European Anticipation Bulletin' No.14 report - see below.) 'America's Very Great Depression', then sooner or later the question of a "New 'New Deal '" must enter the discussion. And in the belief of many it is not only America's fate that is in the balance. If as many claim the money financing this housing bubble comes from global sources, the end of the US housing bubble could have disastrous consequences globally. If indeed 50% of “securitized” mortgage debt is held by overseas investors, the subprime meltdown could shake the entire global financial system.While it is true that assessments of the extent to which the New Deal rescued America from the ravages of the Great Depression vary widely, in any case, on this occasion perhaps we can for once commit ourselves to learning something from history. And this at a time when there is an unmist...

Forum Pick of The Month
2007-04-28 07:20:00
Since launching this blog I need hardly tell you my surfing patterns have had to adapt to the job of finding the information needed to digest the subprime crisis and all things 'bubblenomic.' It's certainly become a dizzying learning experience (whether a successful one will be up to the judgement of others). It seems a worthwhile endeavour in any case to share the sources I am coming across and with that end I will try to present one source that I've found particularly rich each month.This month I am calling your attention to the iTulip Forum s which appear on the website of the company of the same name founded by Eric Janszen, co-author with David Wiedemer, Robert Wiedemer and Cindy Spitzer, of America's Bubble Economy: Profit When It Pops. Although there is a premium area of this forum, there is plenty to be had from the free area, including regular commentary by Jansen, and additionally by the respected Investment Analyst & Portfolio Strategist, John Serrapere; Sean O'Toole...
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Speculation and The Housing Bubble
2007-04-25 06:32:00
Most of us have, or at least think we have, a pretty good idea of what speculation means when applied to the stock market. Financial advisers will give us various rules the first among which is to speculate only with money the loss of which won't be a catastrophe for your portfolio and assets in general. But what form does speculation take in the housing market?At first glance we think we know the answer to this too. It's obvious in the statistics after all. Just look at the sales in the non-owner-occupied category and there you have it. Formally, in other words, we think of speculative buying in the housing market as involving those units bought by investors, either with an eye to the fastest possible capital gain in a rising market, or for the rental market with the same ultimate intention of realizing a capital gain through resale.It is not usually the case that a property bought for owner occupation is considered a speculative purchase. However, in the period of a bubble such ...
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Denial Wavering Across The Pond
2007-04-23 08:28:00
It is remarkable how quickly the euphoria hitherto evident in the UK housing market is showing signs of a definite mood swing. On Apr 9th, Larry Elliott, economics editor at The Guardian was reassuring readers whilst hedging his bets under the banner Britain is not the US, so don't panic - yet, by Apr 21 the 'pink un', the UK's venerable Financial Times, an organ not known for frivolity, finally announced in the measured tones we have come to expect of it, Subprime market in UK 'has parallels with US.' Before the bombshell of revised UK inflation expectations and the consequent fall in the dollar against the pound, Elliot was assuring his anxious readers with the Halifax, Britain's biggest lender, announcement that house price inflation had broken through the double-digit barrier for the first time in a year in March, (rising to above 11%) and that the Bank of England decided that a raise in interest rates from their current level of 5.25% was not in the cards; "get on the la...
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Mike Maloney - THE DOW IS CRASHING
2007-04-20 07:00:00
This paper appearing on Financial Sense University deserves serious attention. For one thing it doesn't for a moment indulge in any of the prevalent nonsensical theories of money as 'fiction', 'signs', 'symbolic' etc. In doing so it reasserts the distinction between price and value and correctly identifies gold as the money commodity. One had thought such clarity had died with Classical Political Economy.The demonstration is accomplished by a series of elegant charting exercises which begins by considering the Dow 1997-2007 which of course is denominated in Dollars. However, "Since January 2002 the dollar has plummeted 31.25%, versus other currencies. This has caused money (gold) to rise measured in currency (dollars) as more and more investors move out of their currency and into real money."A series of charts is then presented which show the Dow in Gold, Silver and a selection of different currencies. But it is those charts that show the Dow in terms of the values of several...
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GEAB N° 14 A Chronicle of America's Very Great Depression
2007-04-17 08:03:00
The (free) abstract of GEAB 14 is now available online. This issue claims that the "2007 Very Great Depression has indeed begun."Two aspects are identified:1. A historical reversal of global financial balances:The report chronicles the decreasing role of the US in the field of international trade and wealth production signalling an end to a century-long tendency which began during WW1. This is supported by statistics showing the current dominant place of the EU in the external trade of oil-producing countries. In addition China has now surpassed the US as premier source of EU imports. It also notes that in March 2007, the value of European financial markets surpassed those of the US. This represents "a 'seismic tremor' for the global financial markets as it shows a displacement in the centre of gravity of the global financial sphere out of the US and towards the Old Continent."The following US trends are identified:relentless and durable decline of the US currencydecreasing share ...
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Credit Suisse Mar 12 2007 Mortgage and Housing
2007-04-16 09:55:00
The Credit Suisse research report, Mortgage Liquidity du Jour: Underestimated No More, is a must-read for anyone who wants a thorough look at the US Housing Market. The report considers the deteriorating conditions in the mortgage market and their effects on the homebuilding industry and the resale-homes market, indicating that problems are not restricted to the subprime area or entry-level housing only.The report considers recent trends in the prime, Alt-A and subprime markets and summarizes current guideline and regulatory changes and their effect in contracting the mortgage market further. The conclusion drawn is that tightening liquidity puts current builder inventory backlogs in further jeopardy.Looking at the performance of current mortgages and the impact on new home sales it estimates that there are approximately 565,000 homes in the foreclosure process and goes on to consider possible projections of the effect on new and existing home sales, concluding that 50% of the subpr...
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Heebner: "Biggest housing-price decline since the Great Depression."
2007-04-14 07:37:00
Bloomberg reports an interview with Kenneth Heebner, co-founder of Capital Growth Management, the top-performing real-estate fund. Commenting on the potential effects of the subprime crisis Heebner inferred that U.S. home prices could fall as much as 20% due to rising defaults on high-risk financing. "It will be the biggest housing-price decline since the Great Depression ," he is quoted as saying. Nor will hedge funds be immune from the effects of subprime-loan defaults. Although to a lesser extent, the same goes for mutual funds that invested in Collateralized Debt Obligations (CDOs) and other instruments secured by this type of loan. However investment banks and the brokers who are in the business of packaging and marketing these products will avoid being hurt, having passed on the bulk of the risk to investors. "They know the product is toxic; they're not going to get caught," Heebner said. These comments by someone who has a consistently successful track record in calling the m...
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'Glut is huge - "staggering" home inventory erases hope of a recovery in 20
2007-04-12 07:18:00
A St. Petersburg Times report mentions a term used by Realtors. In the business it's known as "absorption" and it represents the ratio of sales to listings in the market. It is calculated by dividing the total monthly sales by the total number of homes on the market. In the Tampa Bay area in February, it was 5.4% meaning about one in every 20 homes on the market found a buyer, or 2,225 out of 40,896 single-family homes and condominiums. During the peak of the 2005 boom market the equivalent figure was running over 50 percent. At that time half the listed homes sold in a given month. Realtors have been unable to find a worse absorption rate in the historical data.This implies home values are likely to stagnate or fall this year. While the Florida Association of Realtors reports that home prices fell 2% in the Tampa area in the past year, declines have exceeded 10 percent in many neighborhoods. The buyers market is already well in place with the figures additionally distorted by the ...
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Feedblitz Email Subscription Added
2007-04-10 08:51:00
I've added a Feedblitz subscription service so you can now get posts and comments without visiting the page. This can be handy when accessing email 'on the go' or just when you aren't in the mood for clicking links. When I figure out how I will make it possible to leave comments through this method, assuming it's not already a feature!
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Krassimir Petrov - Effects of inflation
2007-04-09 10:54:00
An interesting list of the effects of inflation from this writer:No positive social or economic effectIncreases the level of pricesDistorts relative pricesCreates risk and uncertaintyIncome diffusion effect – early comers gain at the expense of late comersBenefits inflators (inflators=recipients of the inflation tax)Hurts fixed income groupsHurts existing creditorsHurts all holders of money [through] Inflation TaxIncreases the consumption-investment ratioLowers national savingsReduces economic growth & standards of livingCreates illusion of increased business profitsConsumes capitalImposes “menu costs”Imposes “shoeleather costs”Causes a bracket creepCreates MalinvestmentsCauses Business CyclesCauses currency debasement = currency devaluationCauses more expensive importsStrengthens industrial cartelization (predominantly for inputs/resources)Causes speculation and bubblesThe list appears on PrudentBear.com and there is a link to a videocast talk on the subject.This weekend ...
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Features added today
2007-04-07 07:18:00
I've added some new features. Note especially the News Feed at bottom of page. I will do some placement redesign when I have the opportunity to get this to the top but it will involve a severe (for me) change in my template. Who said Blogger For Dummies? The topics I've set up for the feed should deliver items of interest to anyone finding this blog relevant. I've included Home Foreclosures, the Subprime Crisis, the Economy and China Trade Relations to begin with.I've also added Google Adsense. Hopefully the ads will bear some semblance to the blog topics.It is almost impossible to avoid having a US-centric orientation when we think of news. Worse still is the West-centric orientation which really obstructs appreciating the extent to which Global relationships and trading patterns have changed. I highly recommend paying attention to Asian commentary if only to get that sense of looking in from the outside of the box. Shortly I will put up some links to those Asian publications I...
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Home Foreclosures - What future?
2007-04-06 06:08:00
Home foreclosures and the home lending crisis are very much in the public mind right now, or at least they should be. A housing crisis on its own is not a pretty thing as anyone who has lived through one knows. But the present subprime crisis is taking place in the context of other economic forces that many suggest, should home foreclosures continue unabated the consequences for not only the US economy, but for the Global economy would be dire indeed.My intention for this blog is to act as a clearing house for the many strands of opinion and analysis on these questions. Subprime home loans are only one aspect of a complex picture. To see a macro appreciation of this there is probably no better place to begin than the Global European Anticipation Bulletin which looks at all the global trends that impact each other and which situates the US home lending crisis in the context of international economic forces.On each post here I will be bringing you links to other items I have researche...
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