Credit loss could hit $US1trillion(JohnDee/mannfm11)

Credit loss could hit $US1trillion	JohnDee	12/28/2007 6:37:11 PM
Credit loss could hit $US1trillion Font Size:DecreaseIncreasePrint Page:Print David Nason, New York correspondent | December 27, 2007 THEUS economy could be heading into its blackest year since the GreatDepression as estimates of losses from the housing slump and sub-primemortgage implosion reach unprecedented levels. The latest bankestimate of $US700 billion in losses made this week by Rob McAdie, theUK-based head of credit at Barclays Capital, is $US300 billion morethan a headline-grabbing Golden Sachs estimate that jolted US marketsjust last month. And it is light years from the $US50-100billion in losses predicted by US Federal Reserve chairman Ben Bernanketo Congress in July. Expressed another way, the International MonetaryFund and World Bank say only 15 countries have a GDP higher than $US700billion. Australia was 15th on both lists. But even estimates ofa $US700 billion sub-prime bloodbath may be conservative, withrespected finance and economic blog sites like Calculated Riskpredicting losses as high as $US1 trillion. The implications for globalcredit markets of losses of this magnitude would be horrendous, forcingbanks and other institutions to slash lending by several trilliondollars. Combined with the rising cost of oil, the US would beplunged into a recession, the severity of which would depend largely onthe policy responses taken by the Fed and the White House to restoreconfidence and liquidity. Writing in American Banker last week,Alfred DelliBovi, president and chief executive of the Federal HomeLoan Bank of New York and a former deputy secretary of the USDepartment of Housing and Urban Development, said the lessons of theGreat Depression could help avert disaster. He said the Bushadministration should look at the 1933 federal legislation thatprovided $US200 million to set up the Home Owners Loan Corp (HOLC) andgave it authority to issue $US2 billion of tax-exempt bonds. The fundswere used by HOLC to buy delinquent home loans from lenders andrefinance them directly with consumers on flexible terms. HOLCoffered to finance up to 80 per cent of a home's assessed value to amaximum of $US14,000, about $US225,000 in today's dollars. ByJune 1935, HOLC had refinanced 20 per cent of all qualifying mortgages,saving about 800,000 home owners from foreclosure and stabilising thebalance sheets of many lenders. HOLC liquidated itself in 1951 at aslight profit to the government. "The HOLC success story shouldgive policy makers cause to thoroughly consider reviving the model todeal with the current crisis in home finance," Mr DelliBovi wrote. "FranklinD. Roosevelt said the broad interests of the nation require thatspecial safeguards be thrown around home ownership as a guarantee ofsocial and economic stability. "Wouldn't it be a nice change if we could hear President Bush echo those words." Butthe powers to intervene like this may not require the setting up of anew government instrument. As the credit crisis worsens, increasingattention is being focused on a 2004 paper by Fed legal divisionstaffers David Small and Jim Clouse about the extent to which thecentral bank can lend money to individuals, partnerships andcorporations (IPCs). It concludes that the Fed's traditionalconstraints of conducting domestic open-market transactions only inUS-backed or issued securities and making loans only to depositoryinstitutions can be relaxed in cases where banks become unwilling toprovide credit. When this occurs, the Fed is free to lend moneyto anybody it likes, so long as the circumstances are "exigent" andthere is a vote in favour by five governors. "In making loans to IPCs,the Fed would be able to accept a wide variety of private sector creditinstruments as collateral," the paper says.
RE: this number just keeps going up	silvergolong	12/28/2007 6:44:14 PM
and they haven't even factored in the Prime stuff that's going to start defaulting next year. I still like my estimate, which is $2 Trillion.
RE: How's 3 trillion work for you? nm	JohnDee	12/28/2007 6:47:07 PM
RE: How's 3 trillion work for you? nm	silvergolong	12/28/2007 6:50:37 PM
Yeah,why not. I am reminded of the old Project Manager's rule of thumb: takethe most conservative cost estimate you can possibly justify, anddouble it. So I see your 3 trillion... and raise you another billion! Shall we agree on 4 trillion?
RE: How's 3 trillion work for you? nm	JohnDee	12/28/2007 6:52:15 PM
Lets add those together and settle on 7 trillion. Have to factor in the lawyers, you know..
RE: deflationists, take note...	silvergolong	12/28/2007 6:48:49 PM
of the last two paragraphs in the article above.
RE: Credit loss could hit $US1trillion	mannfm11	12/28/2007 7:11:07 PM
Ithink that is online, $1 trillion. I do know that if they set up thesegovernment bailout programs at this point, they will be useless whenthe dam breaks later. the market is telling us we need some adjustmenton supply and demand fronts. they bail out here and the overhang inhousing adds another 1 million units, as the home builders would justbuild more unnecessary inventory. No telling where the lossesstop. I think we probably could go into the tens of trillions beforethis one is done. If it get to $1 trillion, that takes the entirecapital base out of the banking system and basically results in a zeromoney supply. I think you could easily write the stock market down 90%or more in this case and a good portion of its debt. Of course theprice of everything goes in the tank as demand goes to zero in a lot ofinstances and supply goes to zero in other instances. Buyers of $800gold could find themselves big winners with $200 gold, as they wouldhave something to buy something with while those that put their moneyin CD's and stocks lost about all of it. The guys that figured out whatthe government was going to attempt to take out and shoot some of couldget rich if they lived long enough. If they had a $50 bill, they mightbe already viewed as rich.