On Wed, 15 Oct 2008 21:15:32 -0500, Ignoramus17346
wrote:
snip
This is interesting. So, basically, if housing merely "corrects"
itself and returns to its historical trend, we can see further 15-20%
losses just from that correction.
Quite likely even higher in the range 30-50% for the most
inflated areas.
If some areas would correct more
than others, it would mean more losses to lenders compared to all
housing going down equally across the zones.
The extra, additional, damage from that would far exceed damage from
the correction up to now.
i
=========
IMNSHO it is exactly this that will be the fatal blow for the
entire house of cards.
The only saving grace up to this point for financial institutions
hold substantial amounts of residential real estate mortgages and
the derivatives based on residential real estate mortgages, i.e.
the CDOs, is that only a tiny fraction of the inflated values
have been written down, yet this was enough to put several banks,
S&Ls, investment bankers and huge mortgage lenders under, eg.
Wachovia, WaMu, Lehman and Countrywide.
The damage has largely been done, from the time the bubbles
started to inflate, and any "real" assets started to disappear,
to be replaced with gold spray painted doggy poop masquerading as
solid gold nuggets.
Most unfortunately this asset appreciation bubble with the
concurrent disappearance of any "real" assets was *NOT* limited
to residential real estate in the US, but includes almost every
economic sector such as commercial real estate, and most large
industrial companies are now facades and shells of what they once
were, leveraged to the hilt and every asset collateral for one
(or more) loans. The derivative CDOs "backed" by commercial real
estate, student loans, credit card receivables and auto loans
total to about 2X to 3X the notational amount of residential
mortgage backed CDOs, with possibly even less "real" collateral."
Substantial amounts of CDS [credit default swap] "insurance has
been written on these "securities" also.
Even more unfortunately, this asset appreciation bubble with the
concurrent disappearance of any "real" assets was world wide
across all the developed countries, and many of the emerging
counties.
The reaction to this? Shoot the messenger, repeal the
Sarbanes-Oxley "mark-to-market" truth-in-accounting requirements,
and stuff the till even fuller of kited/hot checks.
When all the counties and all the economic sectors are having
serious problems at the same time, where can you turn for help?
For example, Iceland has had an economic implosion and is now
trying to borrow 5 billion dollars from Russia, to avoid a
*NATIONAL* default like Argentina. The citizens can see a
looming food emergency with winter coming on, and are attempting
to convert their rapidly depreciating currency into
non-perishable food, stripping the stores and markets.
http://www.bloomberg.com/apps/news?p...d=aVFtDRGwcc50
http://www.bloomberg.com/apps/news?p...8&refer=europe
http://www.reuters.com/article/usDol...28291820081015
http://www.reuters.com/article/marke...64289320081015
http://news.yahoo.com/s/nm/20081014/...ancial_iceland
Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).