Skip to comments.The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster
Posted on 02/08/2008 9:22:07 PM PST by TigerLikesRooster
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Mike Whitney’s stuff on this is invaluable right now. From an article he wrote yesterday:
“On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to determine the total insured amount for each depositor .as of the day of the failure and return their money as quickly as possible. The agency is modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions. (http://www.fdic.gov/news/news/financial/2008/fil08002.html#body)
The implication is clear, the FDIC has begun the death watch on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDICs job nearly impossible.
Capital is now being destroyed at a faster pace than it is being created. Thats why the Fed is looking for solutions beyond mere rate cuts. Bernanke wants direct government action that will provide immediate stimulus. But that takes political consensus and theres still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This weeks release of the Institute for Supply Managements Non-Manufacturing Index (ISM) was a shocker. It showed steep declines in all areas of the nations service sectorincluding banks, travel companies, contractors, retail stores etcThe Business Activity Index, the New Orders Index, the Employment Index, and the Supplier Delivery Index have all contracted at a historic pace. Everyone took a hit.
The numbers are so terrible, its beyond belief, said Scott Anderson, senior economist at Wells Fargo & Co.”
Agreed. MPT is no defense for credit default swaps. That’s my nightmare. Other folks will be affected in myriad ways. Sold signs are tangible.
We have a serious problem. A quote from a mail from John Maulding sent an hour ago:
“There’s almost no trading being done in the $2 trillion Collateralized Debt Obligation (CDO) markets. Perfectly good bank loans are trading at discounts of between 10-20% to par, in addition to much higher and wider spreads. There are a lot of opportunities for intrepid investors who can distinguish solid value, as funds, banks, and pensions are having to unload loans without regard to value. It is a buyer’s market.”
“The failure of the monoline companies could trigger a very serious crisis, beyond what we have already seen. Of all the things on my worry list, this is at the top. It could trigger a counter-party credit risk in the credit default swap markets that might simply cascade to something hard to imagine. I don’t want to sound too alarmist - but we should be alarmed. This needs to be settled, and soon, so we can go on to the next set of problems. I think if the monoline problem can be resolved, we would be a major step toward the solution of the crisis.”
Cash is king.
Sorry, a typo, that should be John Mauldin.
I am certain that you have been previously advised...., such postings prove you have not consumed your koolaid and are..., consequently..., subversive!
That said..., post on...
“Cash is king.”
Agreed, but what to do about the depreciation? I’ve read some pretty awful projections for the downside reaching .52.
Meanwhile, Forbes is doubting the recession.
Me too.... turndown, perhaps
Business is too good around here to be in recession
I've been a believer in a catastrophic end for fiat money and fractional reserve banking since I was 18. I'm going to be 58 this year.
Man, have I placed a lot of losing bets!
That having been said, this scenario exposes the fraud of calling what people do with paper (of all kinds) the "economy".
The real economy is, or was, inventing, creating, producing, extracting, exploiting, building, and growing.
Those activities ARE the economy.
House flipping and derivative bundling are not.
A restoration of a real economy is a necessity, and perhaps catastrophe (well, not so much, since we'll still have the land, the resources, and the people) is a necessary step along the way.
I’m roughly the same
Looks like this time it is real
Check out the Bush family gold mine — Barrick = ABX
The elites are buying gold and gold mines to hedge against the meltdown they hastened along with stupid trade and monetary policies
Barrick Gold - Wikipedia, the free encyclopediaBarrick Gold Corporation TSX: ABX NYSE: ABX is the largest pure gold mining company in the world, with its headquarters in Toronto, Ontario, Canada; ...
en.wikipedia.org/wiki/Barrick_Gold - 60k - Cached - Similar pages - Note this
The following is also well worth reading. The entire chapter is posted at the link below this paragraph.
Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull-market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of the marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.
by Frederick Lewis Allan
The same touts who are saying the risk of recession is low were saying that real estate was rock solid only one year ago, and that the sub-prime problem was “contained.”
Actually, real estate is in good shape in many areas. The plague is not present everywhere.
There is definitely a problem there but it is not all a lending excess problem.
Huh? A decent percentage of homes on the market in Silicon Valley in the spring of 2005 were vacant. One of many explanations for that is that smart homeowners had done a lot of improvements and had already moved into rentals.
I don't think that's a reliable indicator of a bottom in the housing market.
Strangely enough, the dollar has strengthened against major currencies like the Pound and the Euro (1.49 down to 1.4450) as the big boys think the dollar will be a safer bet than the other currencies when the global economy blows.
In the mean time, money would bail out of the overseas markets in trouble and head for U.S. market which may not been yet hit in full-force.
It will go down nearly at the end. Then everybody will be pancaked in U.S. market.
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