Sunday, June 29, 2008

Fortis warns of imminent meltdown of US economy

In a alarmist post Fortis, amid a raise of capital to cover itself, warns of a US meltdown within weeks.

The original article in Dutch was removed from the website but coverage in the blog-o-sphere is everywhere. Here is an english translation.

They predict 6000 banks going under and ... GM, thereby starting the "meltdown" of the US economy. It is coming! next week!

He he, I don't know what to make of the gloom and doom. I stick by my numbers analysis... the subprime meltdown is 50-60% done. Sure we haven't seen the last part of even the worse of it but this too shall pass. Just batten down the hatches.

For me all numbers will derive from the further decline in house prices. A further 10% down would be good news. 15% would be normal, stretching the FED shock absorber. 20% would deplete it. 30% could be serious problem. As in banks are bankrupt without a hope of federal bailout. It may be the trigger for the partial socialization of the banking system. Far from such radical legislation, the clowns on capitol hill are debating another public handout in the form of "a bill to save the housing market". One way to read it is "if your neighbor defaulted on his loan and you didn't, he gets rewarded". Moral hazard has metastasized. Another way to read it is "there will be pain but let's stage it, too much pain at once can kill a patient". The Japanese lost decade comes to mind of many commentators as the right dosage of pain is a tough balance to strike.

Stay tuned, in the meantime, I will keep remixing music as that keeps me steady, it keeps me focused.

May we live in interesting times, i think chuck norris said that once.


Army No Va said...

Subprime is the tip of the iceberg. Alt-A is next...big wave of resets 2009-11 (5 year Option, I/O and ARMs). As this happens, with another 20%-30% down in values, many prime borrowers will be underwater and will walk too. Already happening (prime borrowers walking) in CA, NV, AZ and Fla. with values down 30%-60% in many areas. I originally thought the bottom could be 2010...could be later.

It's much worse on the ground in these bubble areas than the press indicates (MSM attempting to keep confidence up and serving up what the Real Estate industry wants to see in print/TV).

Roy Russo said...

I got a stockpile of ammo and K-rations in my basement. Marc, feel free to join us. ;-)

Army No Va said...

Yes, Roy, but do you have the guns that go with the ammo? Know how to use them? You also need alcohol and cigarettes. Gold and silver for the big purchases. :-)

Marcf said...

if I join you all we would do is drink the alcohol and smoke the cigarettes. We wouldn't make it long.

I want my mommy.

Army No Va said...

The alcohol and cigarettes were the defacto "money" in the aftermath of Katrina in New Orleans for those who stayed. And guns...either your own or you befriended your street's/or local National Guardsmen (one friend of mine let the outpost personnel use his house - shower, exchange for freedom of movement under martial law and protection).

aarone said...

I agree with 50-60% on the subprime meltdown, and I like your model and numbers. But it's actually a lot more like hedge funds than you like to think.

Your typical "homeowner" needing bailed out has two or three mortgages, based off of less than 50% initial equity in the first. Someone with two investment properties and a second on their primary residence is at the same 30-1 leverage ratio.

That means when the margin call comes, there is no way he can meet even a significant portion of it.

The so-called predatory lending given to first time home buyers on falsified income doesn't matter. They'll either take second jobs to make their payments and not spend, or lose it to the bank anyway, and the only loss on that is due to lack of efficiencies in foreclosure, which right now is running 30% but could easily be trimmed to below 5%.

Marcf said...

The loss to the bank is very real.

When the house goes to the bank, the bank have loaned 100, payments are dead and the collateral is worth 80 at best, not to mention illiquid.

Jingle Mail isn't a very sophisticated routine but it threatens a weakened banking system. Repo is the FED's version.

Is it me, or is the place colder?