[KevO]

$this->bbcode_second_pass_quote('', 'B')ridgewater Associates has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn (£800bn), four times official estimates and enough to pose a grave risk to the financial system.

The giant US hedge fund said that it doubted whether lenders would be able to shoulder the full losses, disguised until now by "mark-to-model" methods of valuing structured credit.

"We are facing an avalanche of bad assets. We have big doubts as to whether financial institutions will be able to obtain enough new capital to cover their losses. The credit crisis is going to get worse," said the group in a confidential report, leaked to the Swiss newspaper SonntagsZeitung.
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Bank losses on this scale would have far-reaching effects. Lenders would have to curtail loans by roughly 10-to-one to preserve their capital ratios. This would imply a further contraction of credit by up to $12,000bn worldwide unless banks could raise fresh capital.

It would be almost impossible to attract or even find such sums from investors. While sovereign wealth funds command roughly $3,000bn in funds, this money is mostly committed already. The funds have grown extremely wary of Western banks with sub-prime exposure after burning their fingers so many times already.

Bridgewater said true losses would mushroom if the banks were compelled to use "mark-to-market", which foretells a much crueller haircut for investors in the outstanding pool of structured debt from mortgages, credit cards, car loans and such like, together worth $26.6bn.

[Concerned]

Ahh we are now swimming in doomer porn. And yet we are in act 1 scene 1.

[KevO]

$this->bbcode_second_pass_quote('Concerned', 'A')hh we are now swimming in doomer porn. And yet we are in act 1 scene 1.

[eXpat]

And another prediction of a crash like the ones or RBS, Fortis Bank, Barclays and Morgan Stanley. BTW my money is on September/ October too for really bad news. The fundations of our economic system are being eroded as we speak.

[mrobert]

Honestly ... $1600 billion doesn't mean that EVERYBODY simply stopped paying their mortgages? I don't think it's true. Or you can create a massive panic to write off (sell) mortgage based securities for nothing, and pick them up for a nice profit.

If we take the average price of a house being $500.000, it means that 3.2 million people simply stopped paying their mortgages? Sounds a bit unbelievable.

[jbrovont]

I can't tell from the article, but they're probably counting the repackaged 'assets,' that banks then counted as collateral. If the value of the collateral evaporates, a lender may choose to demand payment. If the bank that borrowed against the asset can't pay, they're technically "bankrupt" and the bank that lent them money has to write that loan down as a "loss."

For instance, if I'm a bank and I say "Hey mrobert, I have $3 million in assets here, how about you lend me $3 million and you can hold on to these until I pay you back?"

If you give me the money, but then later you find out my collateral is all smoke and mirrors, you might decide to demand payment. Being the fine pillar of financial responsibility and stability I've proven my bank to be, I've probably used your cash as collateral against borrowing 10x that much money and loaning it out so I can take a 2 pt rip on the interest rates.

So um, sorry about your $3million, but I don't really have any cash on me at the moment, but I PROMISE as soon as this next deal works out - I mean, you can count on me for it!
$this->bbcode_second_pass_quote('mrobert', 'H')onestly ... $1600 billion doesn't mean that EVERYBODY simply stopped paying their mortgages? I don't think it's true. Or you can create a massive panic to write off (sell) mortgage based securities for nothing, and pick them up for a nice profit.
If we take the average price of a house being $500.000, it means that 3.2 million people simply stopped paying their mortgages? Sounds a bit unbelievable.

[Fiddlerdave]

$this->bbcode_second_pass_quote('mrobert', 'H')onestly ... $1600 billion doesn't mean that EVERYBODY simply stopped paying their mortgages? I don't think it's true. Or you can create a massive panic to write off (sell) mortgage based securities for nothing, and pick them up for a nice profit.
If we take the average price of a house being $500.000, it means that 3.2 million people simply stopped paying their mortgages? Sounds a bit unbelievable.

[mrobert]

Sorry, I forgot about the leverage effect, now being used everywhere.

This why in a recent article, a banker was asking the government to bail them out. Actually, he was socially responsable in his statement: The government should help people pay they mortgages to avoid loosing their home, [and also avoid our bankruptcy]

What happens if nobody bails out the banks?
I bet my entire assets that the world won't go to hell. Some huge hedge funds / wealthy individuals, etc who loaned the liquidity to the bank, will loose their money. Big deal really. Some big banks will tank, and their staff loose their well paid positions, etc.

From an economical point of view? It will perhaps lead to a crash in home prices, thus making home prices more affordable for everyone. People can use the extra cash on something else, boosting the economy.

[manu]

Going, going, gone!

[shortonoil]

Fiddlerdave said:

$this->bbcode_second_pass_quote('', 'H')onestly ... $1600 billion doesn't mean that EVERYBODY simply stopped paying their mortgages? I don't think it's true.

[mrobert]

This is so sad. It breaks my hearth.
We should make a special place in a PO world, for all those investment bank employes

[Fiddlerdave]

$this->bbcode_second_pass_quote('mrobert', 'S')orry, I forgot about the leverage effect, now being used everywhere.

This why in a recent article, a banker was asking the government to bail them out. Actually, he was socially responsable in his statement: The government should help people pay they mortgages to avoid loosing their home, [and also avoid our bankruptcy]

What happens if nobody bails out the banks?
I bet my entire assets that the world won't go to hell. Some huge hedge funds / wealthy individuals, etc who loaned the liquidity to the bank, will loose their money. Big deal really. Some big banks will tank, and their staff loose their well paid positions, etc.

From an economical point of view? It will perhaps lead to a crash in home prices, thus making home prices more affordable for everyone. People can use the extra cash on something else, boosting the economy.

[mrobert]

That is so sad.

[Electric_Economy_2025]

My mom is 70 should I tell her to cash out her 401k while she still can ?
Who knows what banks an funds its connected to right ?

[BigTex]

Fractional reserve banking systems are INHERENTLY unstable. They're always at risk of "bank runs" for which there is NEVER enough money available.

Add to this inherently fragile nature a dramatic re-pricing of the underlying assets on which credit was extended and it could be "The Mother of All Cascading Failures."

In other words, I don't see a logical point at which this un-winding would stop, since each level of default would presumably trigger another default and/or each increment of asset devaluation would trigger an un-winding or re-pricing of the downstream debt.

[KevO]

$this->bbcode_second_pass_quote('Electric_Economy_2025', 'M')y mom is 70 should I tell her to cash out her 401k while she still can ?

[mrobert]

That is why I am starting to build

[shortonoil]

KevO said:

$this->bbcode_second_pass_quote('', 'W')e should all by now, on here at PO.com, with the exception of the few Santa believers, realise that the economic crash that has begun will have no end. This isn't a 2 to 5 year blip and then all things will go up again. This is essentially the beginning of the end. House prices will never increase again. Why? because we are past peak oil, we have no alternatives, we now have no money to invest, climate change has got to tipping point. This really is it. This is not a rehearsal. This is the last recesssion.