Friday, 21 December 2007

The subprime crisis just keeps on rolling.

This US subprime thing just gets worse. Just when you think the US housing market has bottomed out, something else comes along to send it crashing down further.

Today, MBIA Inc, the world's largest bond insurer, announced that it had guaranteed $8.1 billion of crappy mortgage securities. This punt has imperiled its entire net worth. Understandably, equity markets were a little concerned by this news. MBIA's shares have plunged 26 percent.

MBIA inc has guaranteed a total of $30.6 billion of complex - ie incomprehensible - mortgage securities. Since there is now a possibility that MBIA might go bust, the insurance cover it offered to investment banks looks increasingly dubious. This may require banks to write down further all that subprime toxic crap on their books.

This mess just got a lot nastier.


traderboy said...

"MBIA inc has guaranteed a total of $30.6 billion of complex - ie incomprehensible - mortgage securities"

Surely not true? Rather than being incomprehensible, they are CLEARLY worthless crap :)

Josh said...

Oh boy.......

speedtheplow said...

If things are so bad in the States, how come consumer spending surged the most in three years this November?

Anonymous said...

"how come consumer spending surged the most in three years this November?"

Because people are, on the whole, stupid, material wealth obsessed sheep who all have access to credit cards?

speedtheplow said...

And why did Wall Street just have a huge rally, killing my inverse ETFs?! Just what does it take to bring this frakkin house of cards down????

Anonymous said...

After the year-end bonuses.

Anonymous said...

Look at the UK economy.
True inflation running at 11%pa.
GDP growth projected at 2%+/-

That spells recession to me. Up yours gordon you lying bstd.

The problem is insolvency, not liquidity.
Via fractional lending, if a bank takes a hit to its asset base of (say)£6B, (via losses) it has to reduce lending by £60B.
Ergo recent panic on libor and international equivalents.
Ergo tightening on ALL loans and mortgages.
Severe contraction of money supply caused 1929-30s great depression. (30% contraction + called in loans)
That's what's giving the BofE, ECB, FED, et al, the shits.
Trouble is they can't rebuild institutional balance sheets.
That's why Sovereign wealth funds are now the cavalry. - forced equity sales at heavy discount rates.
China holds hundreds of billions of $ of toxic paper. They are curiously silent.

speedtheplow said...

Anon: your summary rings true. But will it all just blow over like LTCM and Asian crisis? Jury's out.

01/20/2009 end of an error. said...

The USA subprime problem is nothing. We have Alt A aka liar loans coming up to the plate next year. Basically people just lie and say they make X amount of dollars. Mortgage broker says ok but an extra 1/4% if you don't want to document. After that we have the option ARMS with these you pick from a choice of payments. If you pick the lowest which 85% of people do you are in negative amortization. at 125% of original mortgage these reset to fully amortizised loans. Payments typically triple these come home to roost on late 2008 early 2009.

Basic bottom line the housing ATM is gone. We withdrew almost 800B in home equity in both 2005 and 2006. Each 100B has the same effect as 2.5 million 40000 dollar a year jobs. Hard landing next year with no way to avoid it.

395 days till the biggest party in the world

speedtheplow said...

End of an error: we have similar situation in UK with 2-year "teaser" rates, no documentation and 100% mortgages, etc. etc. So why hasn't the UK market come crashing down? The speculation and the smugness alone should have done it. We'll see what happens on the re-sets, which I believe are coming due 2008-09 mostly. I am a self-employed writer and I was offered a £500,000 loan without proof of earnings or anything!!! And you know what writers make...

01/20/2009 end of an error. said...


I feel the UK and the rest of the world will learn from our housing bust and fall faster when they start to fall. Nothing can stop this mess here I can't buy a basic home where I live on 75000 dollars a year. However I can rent a 500k home on nearly an acre with all landscaping included for 1500 a month.

Anonymous said...

UK is definitely in a mess - a massive housing bubble gone bad, inflation, and a large current account. Next year will be the moment of truth.

Anonymous said...

speedtheplow: ¨So why hasn't the UK market come crashing down?¨

Firstly, remember what you were asking for. I don´t think there is any way to avoid a major crisis. I am not talking about the housing market alone, big dislocation to world trade, potentially food shortages.

Governments and their central banks have set out on a course of massive inflation, which is a joke when you think that is was the Greenspan inflation that got us to the state we are in at the moment, to combat the credit crunch.

Now I have heard that you can fight fire with fire, in the context of a forest fire you might burn a stretch of forest in front of the fire, which will act as a fire break when the real fire reaches it. But I can´t see how it will work in terms of the world economy, unless they plan on destroying a few economies in order to save them.

But that makes it sound like the central banks have a plan. I don´t think they do.

Anonymous said...

anon 23/12/07, 00.20.


They also have a problem.
The problem is that the problem is surfacing 5-7 years too early.

Admiral said...

Why do you make it so difficult to post on your other blog

Anonymous said...

Anon @23/12/07 00:20:

¨YES THEY DO. They also have a problem.
The problem is that the problem is surfacing 5-7 years too early.¨

Facinating, tell me more?