Act II Prologue
Prologue: Curtain rises... Central bank loose money policies gets asset bubbles to hyperinflate through multiplier effect.
Halcyon times, but really bad times, as greed leads to asset misallocation, money shuffling and yield chasing.
Globalization through labor at the margin, emasculates the worlds leading economy.
Durable economic activity is outsourced, leaving a non durable service based economy to fall back on.
Curtain falls, intermezzo.
ACT I: Curtain rises...
Greed, loose lending and lowered risk premiums result in record amounts of money being borrowed by unworthy debtors against fraudulently overvalued assets.
Asset bubbles top out and begin to deflate. Bad debt starts to mount, risk premiums rise.
Real earnings and savings are negative. With no more money to borrow, consumer spending slows.
Leading economies go to zero real growth with no durable base to fall back on. Money shuffling and housing are the economy.
Multiplier effect starts to work in reverse, resulting in credit crunch and further asset deflation as leveraged speculators are forced to liquidate.
Curtain falls, intermezzo.
A recap:
From subprime to Alt-A to Prime (read today's other posting re: Ottimo, no takers for prime) all MBS is infected and untouchable; and this is in the "good times".
The foreclosures in prime will mount as the economy weakens further, layoffs ensue, and over leveraged assets deflate further.
MBS has infected CDO and spread to ABS, hedge funds, mortgage lenders, ABCP and even money market funds. In the next act, the banking system gets infected.
Please take your seats, as the five minute bell has rung for ACT II of this horror show...
There's $400 Billion in LBO debt already in the pipeline that could not be sold (no takers) and the banks are already holding on the books.
Well guess what? There's another $550 Billion in short term ABCP which is 50% of the $1.1 Trillion market, that has to be placed or sold in the next 90 days.
Thats almost $1 Trillion the commercial banks and lenders are going to get caught holding and is going to get devalued at fire sales or otherwise.
As hedge funds, lenders, brokerages and commercial banks start folding their tents like a bedouin tribe to a sand storm...
Its starting to resemble the 1929 utilities & investment trust pyramid all over again... drought and all.
I hope the pollyannas and Goldilock's crowd are right and that is is different this time.
Is that a light at the end of the tunnel? Is that the Jeopardy theme playing? What is that ticking sound?
A clock, attached to a very dirty bomb, loaded on a train headed straight for us. The brain trust or ubiquitous "they" better figure a way out and fast.
Fade to black...
Halcyon times, but really bad times, as greed leads to asset misallocation, money shuffling and yield chasing.
Globalization through labor at the margin, emasculates the worlds leading economy.
Durable economic activity is outsourced, leaving a non durable service based economy to fall back on.
Curtain falls, intermezzo.
ACT I: Curtain rises...
Greed, loose lending and lowered risk premiums result in record amounts of money being borrowed by unworthy debtors against fraudulently overvalued assets.
Asset bubbles top out and begin to deflate. Bad debt starts to mount, risk premiums rise.
Real earnings and savings are negative. With no more money to borrow, consumer spending slows.
Leading economies go to zero real growth with no durable base to fall back on. Money shuffling and housing are the economy.
Multiplier effect starts to work in reverse, resulting in credit crunch and further asset deflation as leveraged speculators are forced to liquidate.
Curtain falls, intermezzo.
A recap:
From subprime to Alt-A to Prime (read today's other posting re: Ottimo, no takers for prime) all MBS is infected and untouchable; and this is in the "good times".
The foreclosures in prime will mount as the economy weakens further, layoffs ensue, and over leveraged assets deflate further.
MBS has infected CDO and spread to ABS, hedge funds, mortgage lenders, ABCP and even money market funds. In the next act, the banking system gets infected.
Please take your seats, as the five minute bell has rung for ACT II of this horror show...
There's $400 Billion in LBO debt already in the pipeline that could not be sold (no takers) and the banks are already holding on the books.
Well guess what? There's another $550 Billion in short term ABCP which is 50% of the $1.1 Trillion market, that has to be placed or sold in the next 90 days.
Thats almost $1 Trillion the commercial banks and lenders are going to get caught holding and is going to get devalued at fire sales or otherwise.
As hedge funds, lenders, brokerages and commercial banks start folding their tents like a bedouin tribe to a sand storm...
Its starting to resemble the 1929 utilities & investment trust pyramid all over again... drought and all.
I hope the pollyannas and Goldilock's crowd are right and that is is different this time.
Is that a light at the end of the tunnel? Is that the Jeopardy theme playing? What is that ticking sound?
A clock, attached to a very dirty bomb, loaded on a train headed straight for us. The brain trust or ubiquitous "they" better figure a way out and fast.
Fade to black...
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