Dude you got my hopes up, I thought you were referring to the game Dark Cloud!! :\
On Feb 19, 2008 9:58 PM, Gruss Gott <[EMAIL PROTECTED]> wrote: > America's economy risks the mother of all meltdowns > By Martin Wolf Tue Feb 19, 1:25 PM ET > Financial Times > > "I would tell audiences that we were facing not a bubble but a froth - > lots of small, local bubbles that never grew to a scale that could > threaten the health of the overall economy." Alan Greenspan, The Age > of Turbulence. > > That used to be Mr Greenspan's view of the US housing bubble. He was > wrong, alas. So how bad might this downturn get? To answer this > question we should ask a true bear. My favourite one is Nouriel > Roubini of New York University's Stern School of Business, founder of > RGE monitor. > > Recently, Professor Roubini's scenarios have been dire enough to make > the flesh creep. But his thinking deserves to be taken seriously. He > first predicted a US recession in July 2006*. At that time, his view > was extremely controversial. It is so no longer. Now he states that > there is "a rising probability of a 'catastrophic' financial and > economic outcome"**. The characteristics of this scenario are, he > argues: "A vicious circle where a deep recession makes the financial > losses more severe and where, in turn, large and growing financial > losses and a financial meltdown make the recession even more severe." > > Prof Roubini is even fonder of lists than I am. Here are his 12 - yes, > 12 - steps to financial disaster. > > Step one is the worst housing recession in US history. House prices > will, he says, fall by 20 to 30 per cent from their peak, which would > wipe out between $4,000bn and $6,000bn in household wealth. Ten > million households will end up with negative equity and so with a huge > incentive to put the house keys in the post and depart for greener > fields. Many more home-builders will be bankrupted. > > Step two would be further losses, beyond the $250bn-$300bn now > estimated, for subprime mortgages. About 60 per cent of all mortgage > origination between 2005 and 2007 had "reckless or toxic features", > argues Prof Roubini. Goldman Sachs estimates mortgage losses at > $400bn. But if home prices fell by more than 20 per cent, losses would > be bigger. That would further impair the banks' ability to offer > credit. > > Step three would be big losses on unsecured consumer debt: credit > cards, auto loans, student loans and so forth. The "credit crunch" > would then spread from mortgages to a wide range of consumer credit. > > Step four would be the downgrading of the monoline insurers, which do > not deserve the AAA rating on which their business depends. A further > $150bn writedown of asset-backed securities would then ensue. > > Step five would be the meltdown of the commercial property market, > while step six would be bankruptcy of a large regional or national > bank. > > Step seven would be big losses on reckless leveraged buy-outs. > Hundreds of billions of dollars of such loans are now stuck on the > balance sheets of financial institutions. > > Step eight would be a wave of corporate defaults. On average, US > companies are in decent shape, but a "fat tail" of companies has low > profitability and heavy debt. Such defaults would spread losses in > "credit default swaps", which insure such debt. The losses could be > $250bn. Some insurers might go bankrupt. > > Step nine would be a meltdown in the "shadow financial system". > Dealing with the distress of hedge funds, special investment vehicles > and so forth will be made more difficult by the fact that they have no > direct access to lending from central banks. > > Step 10 would be a further collapse in stock prices. Failures of hedge > funds, margin calls and shorting could lead to cascading falls in > prices. > > Step 11 would be a drying-up of liquidity in a range of financial > markets, including interbank and money markets. Behind this would be a > jump in concerns about solvency. > > Step 12 would be "a vicious circle of losses, capital reduction, > credit contraction, forced liquidation and fire sales of assets at > below fundamental prices". > > These, then, are 12 steps to meltdown. In all, argues Prof Roubini: > "Total losses in the financial system will add up to more than > $1,000bn and the economic recession will become deeper more protracted > and severe." This, he suggests, is the "nightmare scenario" keeping > Ben Bernanke and colleagues at the US Federal Reserve awake. It > explains why, having failed to appreciate the dangers for so long, the > Fed has lowered rates by 200 basis points this year. This is insurance > against a financial meltdown. > > Is this kind of scenario at least plausible? It is. Furthermore, we > can be confident that it would, if it came to pass, end all stories > about "decoupling". If it lasts six quarters, as Prof Roubini warns, > offsetting policy action in the rest of the world would be too little, > too late. > > Can the Fed head this danger off? In a subsequent piece, Prof Roubini > gives eight reasons why it cannot***. (He really loves lists!) These > are, in brief: US monetary easing is constrained by risks to the > dollar and inflation; aggressive easing deals only with illiquidity, > not insolvency; the monoline insurers will lose their credit ratings, > with dire consequences; overall losses will be too large for sovereign > wealth funds to deal with; public intervention is too small to > stabilise housing losses; the Fed cannot address the problems of the > shadow financial system; regulators cannot find a good middle way > between transparency over losses and regulatory forbearance, both of > which are needed; and, finally, the transactions-oriented financial > system is itself in deep crisis. > > The risks are indeed high and the ability of the authorities to deal > with them more limited than most people hope. This is not to suggest > that there are no ways out. Unfortunately, they are poisonous ones. In > the last resort, governments resolve financial crises. This is an iron > law. Rescues can occur via overt government assumption of bad debt, > inflation, or both. Japan chose the first, much to the distaste of its > ministry of finance. But Japan is a creditor country whose savers have > complete confidence in the solvency of their government. The US, > however, is a debtor. It must keep the trust of foreigners. Should it > fail to do so, the inflationary solution becomes probable. This is > quite enough to explain why gold costs $920 an ounce. > > The connection between the bursting of the housing bubble and the > fragility of the financial system has created huge dangers, for the US > and the rest of the world. The US public sector is now coming to the > rescue, led by the Fed. In the end, they will succeed. But the journey > is likely to be wretchedly uncomfortable. > > *A Coming Recession in the US Economy? July 17 2006, > www.rgemonitor.com; **The Rising Risk of a Systemic Financial > Meltdown, February 5 2008; ***Can the Fed and Policy Makers Avoid a > Systemic Financial Meltdown? Most Likely Not, February 8 2008 > > [EMAIL PROTECTED] > > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;160198600;22374440;w Archive: http://www.houseoffusion.com/groups/CF-Community/message.cfm/messageid:254489 Subscription: http://www.houseoffusion.com/groups/CF-Community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5
