Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Credit Crisis Pressure Points Building as Major Banks Heading for Bankruptcy

Stock-Markets / Credit Crisis 2008 Jun 06, 2008 - 09:47 AM GMT

By: Jim_Willie_CB

Stock-Markets

Best Financial Markets Analysis ArticleStandard & Poor announced in late May it has cut or might cut debt ratings on $34 billion of securities tied to Alt-A mortgages, whose type issued in 2007 have a default rate to 6.64% for 90 days late as of end April. Massive S&P downgrades might soon force Wall Street firms to move up to $5000 billion of assets from off-balance sheet locations back onto their books. The bank sector has so far seen very little in bank failures, compared to past cycles.

The Texas Ratio is calculated by dividing non-performing loans at a bank, including those 90 days delinquent, by their tangible equity capital plus money set aside for future loan losses. Using this ratio, IndyMac Bancorp, Sterling Financial, Corus Bankshares, Imperial Capital Bancorp, and GMAC Bank are all on the verge of busts. Look for these banks to possibly lead the list of failures, each with unique vulnerabilities.


Many of the regional and other private banks scattered across the United States are in deep trouble. The Federal Deposit Insurance Corp (FDIC) has declared 76 banks as official ‘Troubled' in a rise from the 50 declared with similar status at the end of year 2006. Joining the breakdown of the big banking stock index BKX breakdown in progress is the breakdown of the regional bank stock index RKH. It has fallen below the pennant pause pattern. The word CONTAGION comes to mind, the nightmare for USFed officials. The worst lies directly ahead for banks and stated losses. All propaganda will be unmasked very soon. Panic might set in within a few months time.

The big banks have begun to set up private resolution business segments , entrusted with the duty to liquidate credit related assets. This trend appears to be an attempt to circumvent regulators, to avoid proper accounting, and to prevent a cascading decline of valuations in disclosed bond markets. JPMorgan hired Blackrock to manage the $30 billion raid on Bear Stearns. Merrill Lynch has also set up a private resolution business segment , according to an internal memo. They seek to reduce their $1000 billion book of assets. They had $6.6 billion in asset backed CDO bonds at the end of March. UBS has created a new distressed asset fund under Blackrock management, again another private resolution business segment. UBS conducted an ugly circular deal, where they sold basically to themselves $22 billion worth of impaired bonds for 68 cents on the dollar value.

Special Purpose Entities, Structured Investment Vehicles, and now Variable Interest Entities (VIE) constitute the shell game for insolvent giant banks avoiding honest balance sheet reporting. CreditSights estimates that impaired mortgage related assets of up to $784 billion remain in VIEs are scattered across major Wall Street and money center banks. The potential additional losses related to VIEs could reach $88 billion, they estimate. Goldman Sachs recently admitted they are holding $11.1 billion in VIEs. Citigroup has a whopping $320 billion in VIEs that are off-balance sheet still.

Standard & Poor just downgraded MBIA and Ambac, the major bond insurers.

Last month Fitch downgraded them. This could provide the ultimate push for the banks to move damaged assets on their balance sheets. An avalanche of bank writeoffs looms. The insurers are dead! Municipal bonds are another matter altogether. Delays by banks on credit asset portfolio writedowns, create risks maybe greater in the Untied States today than they were in Japan in the 1990s. The next process with involve heavy stock dilution much like shampooing: lather, rinse, repeat, then write down, raise capital, repeat.

Lehman Brothers stock has massive option puts, especially at strikes that would only pay off if LEH completely imploded, with some even that expire in June, an identical situation to Bear Stearns just three months ago. Lehman Brothers is poised to be killed. The Credit Default Swap for Lehman Brothers corporate bonds has jumped from 130 at end April to 240 at end May and to 275 in early June. In 1Q2008, Lehman recently admitted a mere $200 million in losses from the oversized $6.5 billion portfolio of subprime securities on its balance sheet. Consider that a quarter of their total securities bear junk status. Lehman executive comments made public do not match reality. The time has come to punish, err, to impose proper value.

The USFed portfolio of resources is limited. The USFed is in possession of $800 billion in assets. It has relinquished at least $300 billion in USTreasurys so far for damaged mortgage bonds. It has extended over $140 billion in credit.

UBS, the Union Bank of Switzerland, is a prime highlighted candidate for imminent failure and declared bankruptcy.

The bank still is plagued by rather substantial continued debt exposure, despite heavy writedowns already. They have $45 billion in US mortgage assets, $8.6 billion in leverage financial commitments like Collateralized Debt Obligations, and $10.4 billion in US student loans. Rumors have swirled that Barclays of London is considering an acquisition of either Lehman Brothers or UBS. The US-UK tag team of banking fascists take their turns.

Countrywide might lose its acquiring suitor in Bank of America, which could quickly force its bankruptcy. The implication is that the credit market will realize that the financial scheiss storm is nowhere ended. Some call the last couple months ‘the eye of the hurricane' appropriately. They originated almost 20% of the US mortgages in recent years. Countrywide could produce the largest bankruptcy of a bank in US history. Ripple effects could be enormous and cause contagion across the banking industry.

In April 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, according to their report. The lower 54% so-called ‘Cure Ratio' among defaulted mortgages last month compares with 80% in April 2007 and 87% in March. The foreclosure process is not abating.

The Standard & Poor Case Shiller composite index of 20 metropolitan areas showed prices of existing homes fell 2.2% in March, accelerating to worse than a scary 20% annualized decline. The National Assn of Realtors reports the 1Q2008 single family home price to be 14.1% lower than Q1 of last year. Home values provide the collateral basis for the majority of bank assets.

The precious metal mining stock index HUI does not show anywhere near as much volatility as the gold and silver prices. The triple leg down in the precious metal price charts contrasts with a double leg down for the HUI in correction this spring. The necessary event for systemic conditions to be favorable to gold, silver, and their mining stocks is the creation and operation of the New Resolution Trust Corp for mortgages. Until then, banks are just playing shell games, shifting bonds among themselves to and from the USFed. Some draining might be taking place by the USFed in open market actions in the rebalance of their own portfolios. The New RTC would enable the USFed to have another Clydesdale horse pulling the GOLDEN beer wagon, one from the USGovt breed. That would constitute the mammoth monetary inflation.

To date all profligate money creation has been hogged by the money center banks and investment banks on Wall Street. However, the US Congress is a pack of cowards on the matter. They refuse to make the tough decisions on the New RTC until the November presidential elections. Until then, housing declines further. Households will retrench as they endure dire straits, then fail. Until then, bank mortgage bonds and portfolios crumble further. They will retrench until they seize then fail. Until then, money creation funnel to Manhattan at the further expense of the USEconomy and US Middle Class. They will enjoy the counterfeit fiesta first, despite being the most culpable for the excesses tied to lax lending and fraudulent loan packaging. When the second big horse is fitted for the harness, we will have the powerful pair ready to drive all things precious. We are witnessing a foundation built for gold. We might be witnessing a calculated plan to subjugate the Middle Class and centralize power in a historical manner.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

“You are able to consume and regurgitate complicated information into layman's terms. It shows that you understand your subject well. It is very easy to take complicated material and repackage it as complicated material. You, however, have the ability to take the complicated and make it understandable to the common man.” (RickS in Californiaa)

“Keep up the good work, and stay safe- the world needs your interpretative skills. “From your radio interviews, I know that your quick wit and conviction are genuine. Your confidence and eloquence comes across just as strongly. You make specific, seemingly outrageous predictions with specific timing, and you are very often right. Really, can one offer any higher praise to an analyst?” (TomH in California )

“The unfortunate demise of Dr. Kurt Richebacher leaves Jim Willie, Bob Chapman, and Jim Sinclair as the finest financial minds on the scene today.” (DougR in Nevada )

“There are four writers that I MUST READ. You are absolutely one of those favorites!! William Buckler, Ty Andros, Richard Russell, and YOU!!” (BettyS in Missouri )

“Your newsletter caught my attention when the Richebächer report ended. Yours has more depth and is broader in coverage for the difficult topics of relevance today. You pick up where he left off, and take it one level deeper, a tribute.” (JoeS in New York )

By Jim Willie CB
Editor of the “HAT TRICK LETTER”
www.GoldenJackass.com
www.GoldenJackass.com/subscribe.html

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

Jim Willie CB is a statistical analyst in marketing research and retaicl forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Jim Willie CB Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in