You may remember we reported on the remarks by EW Henry at Treasury the other day, who likely got fired by now. Here's another article and I think we should raise the level of concern to Code Red right about... Now.
I'm not the brightest bulb in the box, so someone correct me, but I believe the bag holders in the end for the incredible amount of mortgage defaults to come are not just FNM and FRE, not the banks, not the mortgage lenders... it's the hedge funds who own the commoditized mortgage debt. So... besides FNM and FRE melting down, you'll also see an implosion in the hedge fund space, causing them to rapidly unwind their positions at (stocks and bonds) and yes, a classic crash.
Every once in a while, a report comes out from a government agency that's so unassumingly candid you're forced to admit a mistake has been made and that the document was mistakenly leaked, or that its author will soon be fired.
I couldn't help thinking something like that when I read the remarks of Emil W. Henry Jr., assistant secretary for financial institutions at the U.S. Department of the Treasury. You can find his entire speech here. But for the purposes of brevity, I've excerpted the key passages below.
And if you want the even briefer version, here it is: The large size of GSE mortgage portfolios (about US$1.5 trillion), coupled with the lack of market discipline at correctly pricing the risk of GSE debt, multiplied by the interconnectivity of the world's financial institutions has led to a possibility "without precedent." Henry adds that "Financial markets across the board would likely become very illiquid and volatile as firms with significant losses attempted to unwind their positions."
Notice he said "attempted"
July 06, 2006
Uh-oh: How US mortgage debt could cause a global financial crisis
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9 comments:
The Mogambo was right:
"We're freakin' doomed!!!!"
Buy silver, buy gold, buy guns, buy ammo, sell the kids, sell the wife, get into your bunker, and prepare for the invading hordes of unemployed and homeless - the zombiesque human fallout from history's greatest financial collapse..."
Perhaps, I am overly pessimistic.
Looks like it is hitting retail. A drop in buying things other than necessities. The higher rates may have the kids cutting back on credit card borrowing (or they may already be maxed out on their cards, or their parents do not have extra money to give to the kids). Pier one sounds like a good short.
http://news.yahoo.com/s/ap/20060706/ap_on_bi_ge/retail_sales
"Gap posted a 6 percent drop in same-store sales, worse than the 5.1 percent estimate.
Home furnishings retailer Pier 1 posted a 18.4 percent drop on weaker customer traffic, missing expectations for a smaller decline of 14.1 percent
Teen retailers, whose results had rebounded in recent months, had generally disappointing results.
Abercrombie & Fitch Co. suffered a 4 percent decline in same-stores sales, worse than the 0.3 percent gain analysts had projected. Pacific Sunwear of California Inc. suffered a 2.7 percent drop in same-store sales, worse than the 0.5 percent decline projected."
Does Pier 1 imports exist?
I remember it from the Blues brother from the mall scene.
I thought it was a made up name and from what I remember it sold crappy rattan furniture.
What about Disco pants and haircuts? Are they still going?
Pier 1 really does exist.
I know many, many people with haircuts. Disco pants? I am wearing pants that, given the opportunity, could be worn to a Disco. The doors are closed so I don't think they are going anywhere. At least not without my consent and assistance.
I also remember pier one as a cheap rattan store. That was back in SoCal in the mid 70's. Maybe they grew. Then maybe they grew attached at the hip to the housing bubble.
http://tinyurl.com/kewu9
The shorts have already figured that out. I suppose the smart money sold their spec houses and shorted the REIC a year ago.
Inflation is always the "easy" way out. If things get bad enough, have no doubt that Helicopter Ben will keep his promise...
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