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The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster
Sott.net ^ | 02/05/08 | Nouriel Roubini

Posted on 02/08/2008 9:22:07 PM PST by TigerLikesRooster

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To: TigerLikesRooster

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 FDIC’s job nearly impossible.

-—snip——

Capital is now being destroyed at a faster pace than it is being created. That’s 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 there’s still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This week’s release of the Institute for Supply Management’s Non-Manufacturing Index (ISM) was a shocker. It showed steep declines in all areas of the nation’s service sector—including banks, travel companies, contractors, retail stores etc—The 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, it’s beyond belief,” said Scott Anderson, senior economist at Wells Fargo & Co.”


21 posted on 02/08/2008 11:11:27 PM PST by skipper18 (You want a winning GOP ticket for '08? Robinson/Taylor, and you can take that to the bank.)
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To: REDWOOD99

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.


22 posted on 02/08/2008 11:41:42 PM PST by jblair (Air Force Brat)
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To: TigerLikesRooster

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.”

and

“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.


23 posted on 02/08/2008 11:47:00 PM PST by AdmSmith
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Sorry, a typo, that should be John Mauldin.


24 posted on 02/08/2008 11:50:08 PM PST by AdmSmith
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To: AdmSmith
We have a serious problem. A quote from a mail from John Maulding sent an hour ago:

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...

25 posted on 02/08/2008 11:54:20 PM PST by ExSES (the "bottom-line")
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To: AdmSmith
Yes, it is serious.
26 posted on 02/08/2008 11:58:37 PM PST by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: AdmSmith

“Cash is king.”

Agreed, but what to do about the depreciation? I’ve read some pretty awful projections for the downside reaching .52.


27 posted on 02/09/2008 4:27:29 AM PST by OpusatFR
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To: TigerLikesRooster

Meanwhile, Forbes is doubting the recession.

Me too.... turndown, perhaps

Business is too good around here to be in recession


28 posted on 02/09/2008 4:36:22 AM PST by bert (K.E. N.P. +12 . "You can't be that way"......... Clint)
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To: TigerLikesRooster

VTTTT


29 posted on 02/09/2008 4:38:43 AM PST by dennisw (Never bet on Islam!)
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To: Travis McGee
 
http://www.jsmineset.com/home.asp?RQ=EDL,1&sPID=0&linkid=3806
 
 
Jim’s Formula:
September 1, 2006
  1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
  2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella - Goldilocks situations.
  3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
  4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
  5. Lower profits leads to lower Federal Tax revenues.
  6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
  7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
  8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
  9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
  10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
  11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
  12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
I heard all this "slow business" as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.

 

30 posted on 02/09/2008 4:43:33 AM PST by dennisw (Never bet on Islam!)
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To: Travis McGee
Very likely scenario

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.

31 posted on 02/09/2008 4:50:10 AM PST by Jim Noble (Look out kid, they keep it all hid)
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To: Jim Noble

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


32 posted on 02/09/2008 4:59:31 AM PST by dennisw (Never bet on Islam!)
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To: TigerLikesRooster

For later

for later


33 posted on 02/09/2008 5:07:23 AM PST by JDoutrider (No 2nd Amendment... Know Tyranny)
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To: dennisw; skipper18; TigerLikesRooster; Jim Noble; AndyJackson; ex-Texan; Squantos; river rat; ...
Please consider reading the entire linked analysis I excerpted at 15.

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.

"Only Yesterday: An Informal History of the 1920s---Aftermath: 1930-31"

by Frederick Lewis Allan

34 posted on 02/09/2008 5:11:13 AM PST by Travis McGee (---www.EnemiesForeignAndDomestic.com---)
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To: bert

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.”


35 posted on 02/09/2008 5:12:24 AM PST by Travis McGee (---www.EnemiesForeignAndDomestic.com---)
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To: Travis McGee

Actually, real estate is in good shape in many areas. The plague is not present everywhere.


36 posted on 02/09/2008 5:21:50 AM PST by bert (K.E. N.P. +12 . "You can't be that way"......... Clint)
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To: Travis McGee
One more thing tho.... I was in Florida recently and in a Jacksonville suburb I noticed that there were lots and lots of good residential “Southern Living” type houses with For Sale signs.

There is definitely a problem there but it is not all a lending excess problem.

37 posted on 02/09/2008 5:25:49 AM PST by bert (K.E. N.P. +12 . "You can't be that way"......... Clint)
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To: REDWOOD99
You’ll know this market has bottomed when you see some “SOLD” signs going up on vacant houses.

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.

38 posted on 02/09/2008 6:49:44 AM PST by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: TigerLikesRooster

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.


39 posted on 02/09/2008 7:20:22 AM PST by wildbill
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To: wildbill
That could be true. The problems may originate from U.S. market, but I think financial market dominos will first collapse outside U.S. Europe or Asia. Then it will move toward U.S.

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.

40 posted on 02/09/2008 7:27:11 AM PST by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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