November 06, 2007

FLASH FLASH FLASH: Markets fear banks have $1 trillion in toxic debt

MortgagePANIC is here.

And then, HP'ers, the real ugly truth started to (finally) come out. Funny though, they're still talking about losses on the toxic stuff. Don't they understand the conforming stuff is getting killed too? And that this meltdown will put most loans underwater?

Soft landing right? Credit crunch over right? A few billion in markdowns and call it a day righ?mort

I don't think so.

Banks will fail. Trillions will be lost. CEOs will go to jail. And the biggest bubble and mania in history will be followed by the biggest crash the world has ever seen.

It hath been foretold.

Get ready for more dollar destruction, more Fed injections, more rate cuts, more inflation, more market turmoil and more HousingPANIC. We've got a long way to go.

Markets fear banks have $1 trillion in toxic debt

A new phase in the credit crunch, one of “$1 trillion losses” seems to be dawning. The crisis at Citigroup and renewed doubts about some of the world’s leading banks disquieted stock markets on both sides of the Atlantic yesterday, with the fractious mood set to continue.

Bill Gross, the chief investment officer of Pacific Investment Management, said US mortgage delinquencies and defaults would rise in 2008. “There are $1 trillion worth of sub-primes, Alt-As [self-certified] and basically garbage loans,” he said, adding that he expects some $250bn in defaults. “We’ve only begun to see the pain from rising mortgage payments,” he added.

Samir Shah at Landsbanki Securities said: “People thought most of the bad news had been priced in. It seems we’re entering a second phase of the credit squeeze. We’re going back to a place where liquidity is drying up and volatility is increasing.”


streetraider said...

Hey Keith, how about a blog site called Watching that Peter Schiff video where he said credit cards are the next sub-prime, it might be a good time to start educating the sheeple of the next shoe before it drops.

Anonymous said...

This is guy that Bush picked as Treasury Secretary. Any doubts that this country is going down and everything in the market is rigged?

Nov. 5 (Bloomberg) -- Treasury Secretary Henry Paulson says the U.S. is examining the subprime mortgage crisis to ensure that ``yesterday's excesses'' aren't repeated. He could be talking about himself and his former firm, Goldman Sachs Group Inc.

Paulson, 61, doesn't mention that Goldman still has on the market some $13 billion of almost $37 billion in bonds backed by subprime loans or second mortgages that it created while he was chief executive officer. Those bonds have an average delinquency rate of almost 22 percent, higher than the average of other subprime bonds from the period, according to data compiled by Bloomberg.

Starting in March, Paulson said the damage was ``largely contained'' and was no risk to the larger economy. When other credit markets began to be affected, he and others began pushing for solutions.

Paulson and Robert Steel, a former Goldman Sachs vice chairman who is the Treasury's undersecretary for domestic finance, helped persuade Citigroup and other banks to set up an $80 billion partnership to buy assets from any SIVs that couldn't refinance their debt.

Goldman under Paulson created 58 mortgage pools branded under the acronym of GSAMP, which originally stood for Goldman Sachs Alternative Mortgage Products, starting in July 2002.

Anonymous said...

Yes, but 1 trillion in questionable debt will not result in 1 trillion in losses. Only a portion will go bad, and there is an asset backing the debt, albeit an overvalued asset. Remember foreclosure does not mean that any costs incurred by the foreclosing party and any deficiency goes away. Usually they are added up and made into a "deficiency judgment" that attaches to the person as a debt/liability.

From the looks of things this 1 trillion in debt will result in about 400-500 billion in defaults, lets just say half. Lets be conservative and say that the assets will cover just 1/2 of that. So we are looking at 250 billion that must be absorbed by the financial system.

This is the size of the S&L bailout adjusted for inflation. Uncle Sugar will come in and bail out the banks, create another moral hazard and we will all move forward.

tim73 said...

This is it, boys and girls. Get your money out of American banks. I repeat: GET THE MONEY OUT!

The closer you can put the money to the Switzerland and their vast holdings of Jewish gold teeths, the better.

Jump light just turned green while left engine is on fire and plane is diving steeply.

Butch said...

It's far worse than Gross is saying.

Here is the situation:

There are thirteen million loans made to sub-prime, Alt-A, I/O, ARM Jumbo, homedebtors

Total dollar amount of the above loans: $3.5 trillion

Dollar amount of CDOs held by pension funds, mutual funds, money market funds, banks, insurance companies: $2.5 trillion

Total amount of bad loans, MBS/CDOs/, LBOs stuck (on and off balance sheet) in the bowels of Wall Street banks: $1 trillion (plus all the leveraged CDO-squared/cubed which totals trillions more.

For an indication of what is REALLY going on, please check these REAL "Four Horsemen":

The dollar


Wall Street bank stocks Chart

Credit insurers chart

We are in "Crack-up Weimar" mode.

And God help us if we have any more rises in the price of oil, or China and/or Japan tire of taking a pounding on their $2 trillion of dollar holdings.

Anonymous said...

BMW profit up 78% and that's with the falling dollar. Had the dollar not tanked it would be up close to 100%. That's a sure sign of a coming world wide depression.


Anonymous said...

THe smart money geniuses probably has known this just for some time now yet there are people in the market still thinking they are making $$$$. How long will this slow train wreck take before it finally crashes to a stop? A year? 18 months, 2 years? How long can the fed and wall street keep this bull$hit and MSM propaganda up?

borkafatty said...

Its good Tv for sure..oh wait the MSM does not put this stuff on tv...

GOOD I-NET ya thats it.

Now if I only had some Beer, a Hooker and some Cocaine, my life would be truly complete.

Anonymous said...

But Keith, Countrywide stock is going back up now. Orangzillo has assured the markets he will turn a profit in the 4th Quarter and MGIC & PMI think it's over too!!! Doesn't everyone know that the perfectly timed housing bubble scare is propaganda put out by liberals just before the election year to blame the Republicans. You HP Doomer & Gloomers.

Anonymous said...


jOeRzOe said...

This is cool blogs -->Student Loan -->Mortgage Refinance

Anonymous said...

Since a lot of Jurisprudence is not really about what's legal but what is rather "political," does it stand to reason that Countrywide's efforts to reconstitute and assist subprime borrowers have more to do with being seen as the "Good Co.", and Mozillo as the "Good Guy"?

This way, by playing the politcal game, Mozillo can strike lots of points in the political arena thereby undercutting the SEC's mounting evidence of his crimal business dealings.

FlyingMonkeyWarrior said...

Market Ticker

Monday, November 5, 2007

Mirage Monday


The real issue is the $5 trillion in so-called "wealth" that was spent but unearned, and as a consequence was been replaced by DEBT on consumer balance sheets.

That debt now requires service and will for years if not decades to come, unless it is written-down en-masse!

Obviously, to try to unwind this "all at once" would crash our economy instantly.

50% losses in the stock market? Try 75% and an almost-certain deflationary depression.

Of course that's unrealistic.

We're not going to take the medicine in "one gulp" any more than we got the benefit from the fraud in "one gulp".

But it is beyond question that we will take the pain and cost of unwinding this mess.

It cannot be avoided.


The entire premise of this "expansion" over the last four years has been fraudulent.

There was no actual expansion. No real wealth created. No real economic activity advance.

Instead, the truth is that our "price/earnings" ratios in the market have been propped up by consumer spending that was wholly built upon a fraudulent foundation. It has been a Chimera; the idea that you can create something from nothing.

I'm tired of it. You should be tired of it. You should not tolerate this from the media, from the regulators and from the politicians.


It has been driven by organized fraud in the housing market, from appraisals to "subprime" mortgages to pumping "interest only" and "negative amortization" loans (which brokers knew where unaffordable once they reset or recast) to outright false claims of phantom income by borrowers.

All of this produced phantom economic activity which fueled the export business - China's making things we consume but our consumption is unsustainable!

By best estimates, 6.5 trillion dollars worth has been withdrawn from their "household ATM" by US consumers in the last four years and spent.

To put perspective on this the US GDP last year was about $13 trillion dollars.

Let's presume that 20% house price appreciation over the last four years is "about right" given 3-4% real wage growth. So the rest - 80% - is the product, direct and indirect, of fraud.

That makes roughly $5 trillion over four years of phantom money that wasn't real wealth created by real economic activity.

That's 9.6%, roughly, of our GDP on an annualized basis!


Anonymous said...

Sick and Dying Nation USA

We have been sold out.

Your (and your heirs) future has been stolen.

Your dollars are virtually worhless. No one wants them. Tthey don't buy anything.

Your job is about to be outsourced to cheap labor elsewhere.

The turd word invaders have decimated your health care system.

Inflation is rampant. Food and commodities will be in short supply.

Gasoline will be $10.00 per gallon.

People live in the street.

2 million houses are empty.

George Bush and Dick Cheney will not go to Prison.

Do you care? What IS YOUR PLAN?

1. Bend Over.
2. Grab your ankles.
3. Smile.

mt olympus said...

Well it's Tuesday morning, 11-6-07, and the PPT is already hard at work. It takes more than bad news and wispers of calamity to dampen this Wall Street Bull-um-spirit.

Anonymous said...

Gold at $822 this morning. Looks like my cash infusion is in the bag (with cost of living increase). It is begining to look alot like pre war Gremany around here. Cheer your new leader Werk Party.

consultant said...


My wife and I live in Decatur, Georgia (right next to Atlanta). Our county (DeKalb) has a great online listing of all residential real estate transactions. Go out and randomly pick any neighborhood, see a for sale sign in a yard, get the address, type it into the county database and you can get an instant feel of the scope of this mortgage crisis.

We've been hit by a neutron bomb.

Some of these homes have been flipped 8 to 10 times since 1999. The average from then to now seems to be about 4 flips.
You can easily spot the start of mortgage fraud when you see a home, which sold for $79,000 in 1998, sell for $180,000 the next year. My wife and I have looked at some of these supposedly updated homes and its a joke; and it should be a crime. Some of the other stuff looks okay, but the prices are hiked way past any reasonable comps.

Lets call this what it is-criminal racketeering. Where are the AGs in the 49 other states?

There is so much jacked up bad stuff out here, there is no way Paulson (of all people) or the Fed Chief is going to guide us to an easy landing.

A lot of people are holding ugly bags right now.

ForWhomTheTollBuilds said...


I know I only ever seem to post about Swann's blog, but once again, there is something very telling going on over there.

They are saying that now is a great time to buy because:

"The banks may not lend you money for very much longer"


Peter T said...

> Don't they understand the conforming stuff is getting killed too?

Would that not be the time for a closer look at Fannie and Freddie? When will they be so overwhelmed by losses that either they go bankcrupt or the taxpayers bail them out? It seems from the financial commentaries that they are the ones keeping the mortgage market alive today.

grave dancer said...

As I predicted last Spring, PIMCO's Bill Gross is predicting record lows next year for 30-year mortgage rates:

The Fed can't let housing fall, so they will use whatever manipulations are needed to prop up borrowers and refis of toxic loans.

This of course is bad news for HPers because inflation is going to run rampant raising both rents and house prices. People with fixed rate mortgages, or for that matter any fixed rate debt , are sittin' pretty. Keith, your burger and fries at that British pub will be $40 next Summer.

Anonymous said...

Now I know I read this somewhere on the net a couple months ago, something about how we`re not even into the innings yet, we`re still in the national anthem.

I`m starting to be a believer.

Anonymous said...

High energy and strenght is waisted in the youth. It is too bad that most people including HPers don't see the forest for the trees.

History always repeats itself. You cannot wish the outcome. The outcome of this mess will be of tragic proportions world wide. All asset class prices will drop for years. It will not make goos fianncial sens to buy a house for 1-015 years. Everyone will lose in this downtrend. I for example am faced with a need to buy a house for my family, my logic has been telling me for years ..."hey you know this is a bad choice, you didn't just spend all that money in education and MBA in order to make the mistakes of a lifetime". On the other hand life is short kids are young only once. Decisions decisions.

i have the guts to hold -off for few more years, do you? said...

I was reading through media queries today on the PR service I use and this one caught my eye -

"Real estate contingency plans- I'm looking for people such as real estate attorneys and others in professions tied to reale estate to discuss what your contingency plans are as the industry evaporates."

LOL ... pretty funny ... the business press is now writing articles about what REIC-tied people will do now that the REIC goes away ... classic!

Anonymous said...

Finally they have the illion right. Assclowns started with millions, then billions and know they are at least in the rigt zip code. Home equity extraction was about 6.5 trillion over the last 4-5 years and this has all been spent. So some people think the damage could be several trillion in toxic debt.

Goldman today denies rumors of more write downs. Right, and single 40 year old men vacationing in Thailand are not pedophiles.

November 15th FASB 157! Even CNBC mentioned it.

michael said...

anon 5:49:

i am in a similar boat. wife would like to nest and we are both in our late 30's. we talk about having a home, a nursery for a baby and our desire for the american dream. after all we are both professinals and we deserve it.

then i think of the movie the unforgiven.

bill money (clint eastwood) has a gun to little bill's (gene hackman) head.

little bill: "i don't deserve die like this."

bill money: "deserve's got nothing to do with it."

little bill: "i'll see you in hell bill money."

bill money: "yeah."


Anonymous said...

Which bank, or investment firm - which financial companies do you think are going to be the "Enron" of this mess? Some one is going to be the mascot - but who?

I use alot of banks/brokers, blah blah and they are all incestuous, so I need to keep my cash - albeit shrinking - safe. Some cash is better than no cash...which bank is going down first? Investment broker?

Anonymous said...

"i have the guts to hold -off for few more years, do you?"

No, I do not. My wife has been complaining about wanting to move for years now and I am finally going to have to give in.

I had told her that if she could save 100k we could move. Unfotunately, we might be almost there. I am actually hoping that I do not get a big bonus or a raise this year as that might give me an excuse to hold out one more year.

Peter T said...

> I for example am faced with a need to buy a house for my family (...) life is short kids are young only once.

Rent a house. How difficult is that?

Eric said...

"Rent a house. How difficult is that?"

When you have a family it's always a good time to buy! Besides, everyone knows that only scum rent.

Anonymous said...

The lawsuits that come out of the massive fraud that made the housing bubble will make enron look like a 7/11 stickup

Anonymous said...

To Keith and all of the other Doom & Gloom Crowd:

Things will be just fine. The global economy is inter-connected and we might enter into a recession but everything will work out. What, do you think we will really enter a depression? Oh people have predicted Doom and Gloom for DECADES and it has not happened.

The world needs the U.S.A. more than the U.S.A. needs the world. Do you really think that foreign creditors would allow the U.S. to enter into a deep recession? If so, then they would shoot themselves on the foot and that won't happen.

Also, in the past seven years, 18 TRILLION DOLLARS OF WEALTH has been created in the U.S.A. and only a third of that is related to housing. Also, the combined total household net worth of American households is very high too.

But I get a kick out of all of you Doom Sayers that the sky will fall. And yet, the world's greatest country and largest economy will continue to chug along and people will continue to prosper while folks like you will continue to predict depressions, plagues, comets crashing into Kansas, etc...

Anonymous said...

Anon said:

Also, in the past seven years, 18 TRILLION DOLLARS OF WEALTH has been created in the U.S.A. and only a third of that is related to housing. Also, the combined total household net worth of American households is very high too.

Only a third huh, well call me crazy, but I think that is enough to cause a crash, not to mention the skyrocketing fuel prices that are likely to materialize.

Good luck with that.

westwest888 said...

HOLY CRAP - CNBC news flash 5:30 EST. GM takes a $39,000,000,000 charge related to mortgage write downs. Even though they sold GMAC, there is a rider in the deal that they are still on the hook.

Everyone on CNBC said "oh healthcare write down". One minority voice says "thank god its not mortgage". Producer cuts in and says it's mortgage.

Get out of GM while you can. The $60B health care bomb, the pension bomb, and the coming waves of mortgage bombs will destroy that company.

Anonymous said...

My wife and I live in Decatur, Georgia (right next to Atlanta).
We've been hit by a neutron bomb.

Nope, the real bomb will come when you run out of water for good, as it's going on right now in GA. However, everyone there seems to be whistling pass the graveyard, just like they did with the housing fiasco. So I will make it clear for all of you in GA, NC, SC, AZ, NV: YOU WON'T HAVE ANY WATER IN A MATTER OF A FEW YEARS!

Anonymous said...

Get out of GM while you can. The $60B health care bomb, the pension bomb, and the coming waves of mortgage bombs will destroy that company.

My professor of Finance at Business School was calling this moment many years back. That GM pension is doomed.

Anonymous said...

But I get a kick out of all of you Doom Sayers that the sky will fall. And yet, the world's greatest country and largest economy will continue to chug along and people will continue to prosper while folks like you will continue to predict depressions, plagues, comets crashing into Kansas, etc...

Kudlow, Cramer, Paulson, Bernanke, Hannity, CNBC, FAUX News, and the Bush idiots said must be true!


Princess Mononoke said...

Here is a quote taken from The Market Oracle article called Stock Market Subprime Mayhem and Bush's Moral Swamp. Mike Whitney hits the ball right out of the park!!! Brilliantly written. Enjoy!

"What is striking is how the new “structured finance” paradigm replicates a political system which is no longer guided by principle or integrity."