Global financial system implosion begins

[free spirit]

Sell your shares, unit trusts and property now peeps - while it's still "OK". Get out of the GBP and USD and into Euros - as an interim step - and then into the (Chinese) Yuan. It's appreciated nearly 15% against the US$ over the last 3 years, and yet the Yanks are still pushing and pushing for another 40% appreciation - fast! It may not be that (the Chinese have their own agenda and timing), but there's no doubt that it's the strongest currency in the world and will continue to appreciate as things progress.

*rings broker*

broker says I've got none of these things other than my wages, and the shops apparently don't take Yaun or even euros

 

[goebfwai]

So long as you keep interest rates at zero, and keep printing squillions of dollars every week, you can probably stave off the inevitable.

But what happens when they try to turn off the money tap?

Indeed. Just been reading this, which works on that theme:

http://www.telegraph.co.uk/finance/...ks-across-the-globe-tighten-credit-again.html

 

[david dissadent]

Has OptionARMaggedon been postponed?

Credit Suisse may have made a calculation error, and the resets are only set for 2014 onwards when the loans start hitting 125% of principle, although every year in the mean time the minimum payback increases by 7.5%. So WellFargo looks like it may be saddled with about $125 billion of dead assets. That is a huge drag on the bank.

They are essentially stashing away on their balance sheet tens of billions of neg-am loans that will recast into 20-year fixed rate mortgages in 2014 and 2015. Talk about a payment shock.

Also worrisome is that we’ve heard from readers that WaMu/JP Morgan is notifying Option-ARM borrowers that they are extending their minimum payments out another 5 years. Are they pushing off recasts into 2014/15 as well?

(Ill try update this post when I get a chance after work.)

 

[A Dashing Blade]

Credit Suisse may have made a calculation error . . .

Rofl, they always were a bucket shop!

 

[Dr Jon]

Big Crash Coming?

As the earnest folks at Baseline Scenario never tire of reminding us, we have a financial system here in the United States, in Europe and elsewhere that has not been reformed at all. In fact, it has been bailed out and thus operates regardless of risk. What has changed is that there is a new, enormous free flow of capital for Finance to gamble with.

This new carry-trade bubble, like all previous ones, encourages reckless behavior. Banks, hedge funds and other investors appear to be leveraging up again like there’s no tomorrow—which may be the right strategy for some of them because there may not be a tomorrow, figuratively speaking.

 

[Jessiedog]

I would have thought that in case of runaway inflation, you wouldn't want to sell your property?

That depends.

Your money might become worthless, but your house is still a house, in the end.

Sure.

If you can afford the monthly mortgage and don't lose your job, you'll be fine in your home. And the value may even go up to GBP 1,000,000. But if the GBP is equivalent of (in todays money,) GBP 1,000,000 = USD 1:00, there's not much point in selling, really. And when the GBP and USD are both in the tank, we'll be measuring everything against gold again - and the Yuan will buy far more ounces per unit than either the pound or the dollar.

I'm not suggesting an immediate collapse of western currencies, but everyone knows that the world economy is very nervous about the medium-term implications of what's happening. The US and the UK are at the point where they are boiling more and more stones, trying to squeeze the last bit of blood.

It won't last.

The UK's economy does not operate in a vacuum.

Inflation is good news for people owning houses, because the inflation makes their mortgages much smaller relatively.

Giles..

As long as people have jobs and can service their mortgages and don't need to sell - sure.

But there's another massive bubble forming as the speculators "hot money" currently flows into East Asia.

Is a flat in a certain district of Hong Kong really worth GBP 7,000 per square foot (the highest price in the world right now for any residential property) - as has just been purchased (not by an owner-occupier, of course, but by a cash purchaser - from mainland China - laying down more than 30 million quid and hoping to "flip it" for a profit within a few months) - while at the same time bankrupcies and liquidations are through the roof, layoffs are rife, the unemployment and underemployment rates are rising and wages are being cut across the board, including the civil service?

I don't think so - luxury property in HK has risen nearly 100% in less than a year.

You think this is sustainable for much longer?


The imbalances in the global economy are just beginning to unwind. Massive amounts of so-called "money" are flying around the world in a whirling dervish, desperately trying to find any kind of (quick) profit, with barely a thought given to even a modicum of real risk assessment.

I can't see it ending well.




Woof

 

[elbows]

Extreme turbulence for a good while to come methinks. This prediction is one of the few safe bets there is.

 

[yield]

CIT Group Files Bankruptcy
Nov. 2 (Bloomberg)

CIT Group Inc., the 101-year-old commercial lender that saw its funding dry up in the credit crunch, filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout.

CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT.

...

"$2.3 billion in taxpayer money"!

 

[goebfwai]

Mother of all Carry Trades Faces an Inevitable Bust
Nouriel Roubini | Nov 1, 2009
From the FT:
http://www.rgemonitor.com/roubini-monitor/257912/mother_of_all_carry_trades_faces_an_inevitable_bust

 

[yield]

Mother of all Carry Trades Faces an Inevitable Bust
Nouriel Roubini | Nov 1, 2009
From the FT:
http://www.rgemonitor.com/roubini-monitor/257912/mother_of_all_carry_trades_faces_an_inevitable_bust

Also a link to the FT opinion piece.

Thanks for the link. Interesting stuff. He underestimated the last crash wonder if he'll be right about this one?

 

[A Dashing Blade]

Mother of all Carry Trades Faces an Inevitable Bust
Nouriel Roubini | Nov 1, 2009
From the FT:
http://www.rgemonitor.com/roubini-monitor/257912/mother_of_all_carry_trades_faces_an_inevitable_bust

Apart from the writer being seemingly unaware of what a "carry trade" is, this bit . . .

"Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade."

is pure bollocks.

 

[goebfwai]

Simon Johnson, former chief economist of the International Monetary Fund:
"The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late."
From 'The Quiet Coup'
http://www.theatlantic.com/doc/print/200905/imf-advice

 

[Barking_Mad]

India buys gold

India said it was keen to diversify its reserves away from the US dollar, which has weakened in recent months.

Pranab Mukherjee, India's finance minister, said: "We have money to buy gold. We have enough foreign exchange reserves."

Erik Nilsson, senior economist at Scotia Capital, said the deal was "certainly indicative that the monetary authorities in India are not overwhelmingly upbeat about the outlook for the US dollar".

 

[Dr Jon]

Propping Up A Broken Capitalism

 

[david dissadent]

NYT reports significant error in how GDP and other data are calculated.

Imported goods are being counted as GDP leading to false data on productivity and the GDP itself.

 

[gosub]

http://www.telegraph.co.uk/finance/...hedge-book-as-world-gold-supply-runs-out.html

 

[gosub]

Interesting program on the world service about High Freqency trading,


basically now, in the time it takes the below picture to load and your brain to recognize what it is; there is enough trading autonomy and processing power to zero stocks

 

[Barking_Mad]

Reminds me of a book i read a long time ago called 'March of The Machines', where its author described the stock market and the growth of computer trading and the ability of computers to do it all for man. He posed the question, "Who'd dare turn them off?"

 

[goebfwai]

"Turn the machines back on!!!!!!!" - or turn them off?

 

[Barking_Mad]

From a few weeks ago...

"We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all," - Lord Griffiths, Goldman Sachs Vice Chairman.

http://www.guardian.co.uk/business/2009/oct/21/executive-pay-bonuses-goldmansachs

 

[Dr Jon]

These people are not my leaders, they're politicians. They couldn't lead me across the street.
...
Politics is Hollywood for ugly people

PMSL


From part 3 of This is not the failure of Capitalism it is corporate books cooking

Cynicus is saying similar things

My question is very simple. How can anyone have faith in these people? It is extraordinary that anyone might have faith in people with such bizarre beliefs

 

[goebfwai]

I suppose we can only be grateful that most people are maintaining their faith, and remain ignorant of the fact that the entire global financial system, the banks, the works, is one big Ponzi scheme. I can't really imagine what the world would be like if everyone realised the emperor wasn't wearing any clothes. Practically everything is a derivative of money. The economic system is full of illusions built upon illusions, like a fairground hall of mirrors giving a flattering image of things, and inflating the true proportions.

 

[Sunray]

Turn the tap off?

Nah.

Won't happen, especially in the UK with an unwinnable election for Nu-Lab' coming in May/June 2010.

There will be the inevitable collapse of currencies and massive inflation before that. The west is not ready to bite the bullet, it will keep trying to reinflate until it all goes to shit.

Sell your shares, unit trusts and property now peeps - while it's still "OK". Get out of the GBP and USD and into Euros - as an interim step - and then into the (Chinese) Yuan. It's appreciated nearly 15% against the US$ over the last 3 years, and yet the Yanks are still pushing and pushing for another 40% appreciation - fast! It may not be that (the Chinese have their own agenda and timing), but there's no doubt that it's the strongest currency in the world and will continue to appreciate as things progress.


BTW, are peeps aware that in California (a US State with a population of over 120 million souls) if we look at residential properties that carry a mortgage (so not all residential properties, but just a hellofahellofafuckofalotofthem), seventy five percent (75%) of them are in negative equity?

And they haven't even begun the real meltdown in industrial, commercial and retail properties yet.


This is the beginning.




Woof

You are forgetting that we still produce a lot of oil. It might be less than we had but we still have notable supplies.

Global warming aside, this give the UK some considerable wealth to play with, esp as it becomes ever more expensive.

 

[yield]

IMF warns second bailout would 'threaten democracy'
London Times 23/11/09

The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.

Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.

A second time?

 

[Badgers]

Borders' website suspends book sales so not looking great for them now.

 

[goebfwai]

It's incredible that the finances of the California, home to Hollywood, producing films that are exported around the globe, can be in such a parlous state.

"California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status.

http://www.latimes.com/news/local/la-me-budget-deficit18-2009nov18,0,7647152.story

As for UK oil, beyond the North Sea, moves in the Falkland Islands continue apace. An oil rig is on it's way there now:

UK company Desire Petroleum estimate potential oil reserves exceeding 3.5 billion barrels and more than nine trillion cubic feet of gas. Exploration for oil off the Falklands is at a very early stage and no commercial discoveries have been made yet, according to the Falkland Islands Government. In 1998 six wells were drilled to the north of the islands that revealed the presence of a rich organic source rock that could hold up to 60 billion barrels of oil.

http://news.bbc.co.uk/1/hi/scotland/highlands_and_islands/8373823.stm

There was a report on the Strauss-Kahn speech at the CBI on Channel 4 too.

The world owes Gordon Brown a "debt of gratitude" for the way he took the initiative in trying to tackle the financial crisis, says the head of the International Monetary Fund.

http://www.channel4.com/news/articl... gordon brownaposs tackling of crisis/3435197

 

[Barking_Mad]

The Bank of England has revealed for the first time that it lent Royal Bank of Scotland (RBS) and HBOS £61.6bn in emergency funding last autumn.

Bank governor Mervyn King told a parliamentary hearing it "was to prevent a loss of confidence spreading through the financial system as whole".

http://news.bbc.co.uk/1/hi/business/8375969.stm

 

[elbows]

Dubai's bursting bubble has caused bigtime wobbles on the stock market today:

http://news.bbc.co.uk/1/hi/business/8381258.stm

 

[elbows]

Mildly interesting take on the Dubai thing by Stephanie Flanders:

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/11/dubai_not_too_big_to_fail.html

Dubai is not too big to fail. That seems to be the message of the surprise 6 month debt standstill at Dubai World, the most indebted offshoot of the UAE's most indebted emirate.

International markets have been jarred by the news, perhaps as much by the timing as the decision itself (US investors, with markets closed for Thanksgiving, feel more vulnerable than most).

But if you have a lot of money resting on Dubai coming through their dramatic boom and bust story intact, this is indeed a major shock.

Put simply: everyone in the markets thought that, in the end, the federal government in Abu Dhabi would stand by all of Dubai's bad bets. Apparently, they won't.

 

[yield]

Even rich people are being affected by the bubble.

Footballers and film stars caught out as Dubai crash hits new low
The Times. November 26, 2009

David Beckham and Brad Pitt are believed to be among the celebrities and sportsmen who bought villas in Palm Jumeirah in Dubai, a luxury development that juts out into the Gulf. But when the property bubble burst this year, residents saw the value of their investments collapse. Yesterday their situation worsened as Nakheel, the developer, and its state-owned parent made a request to suspend debt repayments.

The statement rocked credit markets around the world and prompted analysts to question whether Dubai, the most populous of the United Arab Emirates, will be able to meet its obligations. The concern is that Nakheel will be unable to continue developing the Palm and neighbouring projects, leaving Dubai and its coastal waters an ugly, unfinished construction site.