August 03, 2007

And then the music stopped, with the investment banks stuck holding the bag

Remember these words from Manias, Panics and Crashes.


"This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'."

And then right on schedule, this headline from today, and a plethora of words that seemingly were ripped out of Manias, Panics and Crashes and plopped right into this story of what's going on:

Credit markets leave banks saddled with £250bn of debt

Leading investment banks on both sides of the Atlantic are saddled with almost $500 billion (£246 billion) in agreed leveraged loans that they are unable to parcel out to other investors.

New figures from Dealogic reveal that in Europe the banks are struggling to clear a backlog of $208 billion worth of leveraged loans that they would normally have sold on through syndication.

In the United States, the figures also show that investment banks are stuck with $269 billion of agreed loans that they are unable to syndicate.

News of the glut of debt on the banks’ balance sheets comes as the shake-out in credit markets produced new casualties as global markets were racked by further volatility.

Guess what folks - when the banks are stuck with massive LBO and CDO on their books and they can't sell it off to the next sucker down the line, what do they do? They damn well don't issue more debt.

Welcome to "Discredit". And welcome to a severe contraction in the ability to take out a new loan to buy or refinance a house.

We have way too many houses, way to few able buyers, and it's just gonna get worse.

14 comments:

Anonymous said...

OOPS

Andy in NZ said...

This blog is doing a Hedgefund implode-O-Meter, he is up to 18!

http://www.obfuscationoracle.blogspot.com/

I am not to sure of his accuracy but eighteen! WOW.

Leverage is not your friend.

Anonymous said...

The Doors, When the Musics Over:

http://www.youtube.com/watch?v=slvPMU-7OyI

bottomfeeder said...

As to the banks it could'nt happen to nicer people, HA HA HA!!!

Anonymous said...

I put a little money into a couple of ETF's: SRS (Ultrashort Real Estate Proshares) and SKF (Ultrashort Financials Proshares). Neither of them have huge exposure to residential home builders or sub-prime. Despite being more broad than I would like, I'm confident that they will do well (as shorts) over the next few months to year. Does anyone know of a better way to get more subprime loan and/or residential home builder exposure in an ETF... short exposure that is?

Anonymous said...

Uh oh. I bought at the very, very bottom in Southern California so I haven't been worried about losing any equity but this could get so bad we overshoot beyond 1995s lows (inflation adjusted dollars).

Anonymous said...

Sweet Revenge from my perspective!! The banks can rot in hell for crisis they've caused. They of all businesses should know that the market is very unforgiving, now they must face the downside of the market forces they put in motion 5+ years ago.

Banker_world said...

I guess greed trumps smarts.

Anonymous said...

Heard the stupidest comment on CNBC yesterday. That banks will be fine because they offloaded the risk via cdos to pension plans and hedge funds.

So, if pension fund and hedge funds are no longer around to buy up the risk, who will the banks push the risk onto? The demand will be cut and banks will get much stricter on their lending requirements because now the risk will fall on them. That means a lot less business and probably a whole lot of job cuts. Not to mention decreased earnings.

So, next time you hear someone say the banks will be fine, rebut them with the above and see what they come back with...

SPECTRE of Deflation said...

We are learning the difference between liquidity/debt and money stock. Cash is KING folks, and I'm talking in a way that we haven't seen since the Great Depression.

Liquid means cash or assets that can very quickly can be turned into cash. The sheeple bought hook, line and sinker that debt was liquidity. It ain't, and it never has been. We have to relearn this lesson every 60 to 70 years.

Get your financial houses in order, and then go stock up on popcorn because this mini-series will be on for a very long time.

Anonymous said...

Does anyone know a web site where I can find the relative exposure of different banks to subprime -- on books and already sold out as paper (probably coming back to them)?

Magoo said...

"...leveraged loans that they are unable to parcel out to other investors."

No they're unwilling. They have the fleeting luxury of being ABLE to hold them.

The Joker said...

"Where does he get those wonderful jpegs?" -The Joker

lili98 said...

National Mortgage News Online - click on subprime. Gives a list of top ten subprime originators; among them Wells Fargo. However, doesn't list all the banks that do subprime mortgages. I read an article recently that said Bank of America does not do any subprime mortgages..don't know about alta-a.