Update numbers on subprime losses?
Via comments, A Meyer muses about the losses on subprime and the actual numbers.
Reading around I have rebuilt some of the numbers and updated my previous prediction.
The mortgage market is 11Tr. 8% is being "jingle mailed", I read that number this morning. Assume 2% increase to 10% (maybe more?).
At that point the banks own the collateral but the collateral is both illiquid and shitty (house).
I read that lately the average price for banks trying to dump those properties has been 50% of loan. Loan cash is gone, no income from the loan (default) and the collateral is 50%. Let's use 60%, why? because it is already a 40% drop in prices :)
11T-> 1.1T-> 440B.
THESE ARE REAL LOSSES OF CAPITAL. ALSO THAT IS ASSUMING THEY CAN CASH ALL OF IT WHICH I HIGHLY DOUBT.
Currently the balance sheets are showing 440B-1T. That is subprime alone. Since then the cancer has spread and you can see other predictions like Roubinis that land the numbers in 3Tr.
Since banks are 10x leveraged, we are talking about a credit contraction of 4.4Tr in the credit markets. What is a 4B hedgie in that ocean of gone liquidity.
Oh and BTW, that is what the FED has left in treasuries so to me that is good news. Without running presses they can sustain some of it, and CLEAR THE MARKET (which some people are now openly calling for). The latest facility was close to a swap of assets (crap for treasuries).
Reading around I have rebuilt some of the numbers and updated my previous prediction.
The mortgage market is 11Tr. 8% is being "jingle mailed", I read that number this morning. Assume 2% increase to 10% (maybe more?).
At that point the banks own the collateral but the collateral is both illiquid and shitty (house).
I read that lately the average price for banks trying to dump those properties has been 50% of loan. Loan cash is gone, no income from the loan (default) and the collateral is 50%. Let's use 60%, why? because it is already a 40% drop in prices :)
11T-> 1.1T-> 440B.
THESE ARE REAL LOSSES OF CAPITAL. ALSO THAT IS ASSUMING THEY CAN CASH ALL OF IT WHICH I HIGHLY DOUBT.
Currently the balance sheets are showing 440B-1T. That is subprime alone. Since then the cancer has spread and you can see other predictions like Roubinis that land the numbers in 3Tr.
Since banks are 10x leveraged, we are talking about a credit contraction of 4.4Tr in the credit markets. What is a 4B hedgie in that ocean of gone liquidity.
Oh and BTW, that is what the FED has left in treasuries so to me that is good news. Without running presses they can sustain some of it, and CLEAR THE MARKET (which some people are now openly calling for). The latest facility was close to a swap of assets (crap for treasuries).
Comments
(how are you doing, from JBoss to finance huh? :)
excellent link, great education thanks. Sacha sent a link via email (in french) where the same point of separation of church and state since 1929 is made.
http://www.lemonde.fr/economie/article/2008/03/18/il-faut-sauver-le-systeme-financier-malgre-lui_1024354_3234.html?xtor=RSS-3208
As for the investment banking side.. what should I say? “Depressing”? Sounds right... but at least I still have a job.
Thank you for the article. Same idea indeed... Let's see what they are going to come up with.