$700 Billion against a deleveraging $1000 trillion

Here are extracts from the conventional market "wisdom" now :

Remember a year ago, when the credit crisis started in Aug 07, a banker said ‘the deleveraging will not be denied.' How true that has proved to be.

Using some basic math, I count total US and ECB temporary lending injections at $3 trillion so far. It's failing to stop deleveraging. It's simple math really, $3 trillion thrown against a deleveraging $1000 trillion is not much. The central banks can lend money to banks, even taking bad assets as collateral, but it does not force lenders to lend to one another. They all know that, the truth be told, no one is admitting the extent of the bad paper they hold. So, they won't lend in interbank lending markets, and Libor rates skyrocket. That effectively negates interest rate cuts by the central banks.

Stagflation is commodity bullish, but deflation is not.

The investing mantra, that the world economy will drive basic commodities relentlessly up, is what we heard for the last 5 years, but the markets are saying that is old hat. What's new hat is a contracting world economy and debt deflation. But it's typical for the economic commentary and thinking to be 6 months behind seeing the obvious, that the investing climate has now changed decidedly away from the general ‘economic growth to infinity' paradigm we heard for the last 5 years.

Nouriel Roubini Predictions

Even if the Bush administration's $700 billion bailout works, the United States still faces the longest and most severe economic stretch since the Great Depression, according to one economist.

"The recession train has already left the station," said Nouriel Roubini, professor of economics at NYU's Stern School of Business during a conference call Wednesday. "What this plan can avoid is a Japan-like, L-shaped recession," where the economy sinks and stays sunk, "that could last a decade or more."

He said a well-implemented plan could limit the heavy bleeding to 18-months.

To do it right, according to Roubini, the toxic credit held by banks would have to be bought up and taken off balance sheets so banks can start to lend again.

For the government to make that kind of investment, he added, it had to get something in return. Roubini suggested that should be preferred shares in the companies that later would convert to common stock.

Roubini also had a solution for the housing market: Reduce mortgage balances to market prices and refinance them to lower mortgage payments.

He pointed out that home prices are down 25% from their highs already and will probably fall another 15%. That would put a good 40% of all mortgage borrowers underwater, owing more on their loans than their homes are worth.

"More people will walk away from their homes," he said. "Even if only one in five walks away, that adds up to a $400 billion loss. If half walk away, it would be a trillion."

The impact of the housing crisis on the larger economy is everywhere. Stock prices are already down 20% from their highs - the definition of a bear market - and will fall another 15% to 20%, according to Roubini.

Consumer spending, which accounts for more than 70% of the national economy, has fallen for three straight months, after being temporarily boosted by stimulus checks.

Home price declines have lowered consumer confidence and removed a source of wealth. Few homeowners can now fund their purchases by tapping their home equity via a home equity loans or cash-out refinances.

"People can't use their homes as ATMs anymore," said Roubini.

Job losses have increased and the unemployment rate hit 6.1% in August, up from 5.7% in July, the highest in five years. Roubini is forecasting it to top out at over 8%, at least.

And mortgage lending problems have migrated into other lending vehicles and will spread further.

Roubini predicted that practically all lending will see increased rates of defaults in the coming months from auto loans to credit cards to commercial real estate loans to municipal bonds.

"We don't just have a subprime mortgage lending system," Roubini said, "we have a subprime financial system."

The next shoe to drop may be thousands of highly leveraged hedge funds, according to Roubini.

As nervous investors cash in, the funds will be forced to liquidate highly leveraged assets at a deep discount, he said, causing the collapse of hundreds of smaller funds that have taken on excessive risk.

Roubini said a massive shake-out of the industry is likely during the next few years.

$9,945,578,231,981.59 is still too little

The USA is nut. They want to pump money into the system until every banks will eventually vomit out money to the borrowers. But they forget one thing, the FED had been lower interest rate until every banks suffer writedown due to excessive lending.
This is why we have so much assets bubble everywhere from commodities to housing and stocks. Now everyone paying the price of the FED folly. The party is over.


From:CalculatedRisk

It now looks like the National Debt will be over $10 Trillion tomorrow.

As of Sept 29th, the debt was $9,945,578,231,981.59

The surge in the National Debt over the last two weeks has been because of the Supplementary Financing Program (SFP) with the Treasury raising cash for the Fed's liquidity initiatives (announced a couple of weeks ago).

Today the Treasury sold $45 billion in 15 day Cash Management Bills that are all for the Fed. Tomorrow the Treasury will sell $50 billion in 42 day bills also for the Fed. And that Wednesday auction should put the National Debt over the $10 Trillion mark (we will know on Thursday).

For good measure, the Treasury is also selling another $45 billion for the Fed on Thursday.

The good news is the borrowing rates are pretty low!

Even though this rapid increase in the debt is being driven by the Fed's liquidity initiatives (and should be paid back), crossing $10 trillion will still be quite a milestone ...

The Joker Bailout

Sounds exactly what the Congress telling Bush.

Inevitable Collapse Of The Dollar

Paul Krugman "We Need Better Government"

We must learn to tell Lies to Surive

The US Government may need to raise taxes

In the end, Paul Krugman seem to suggest due to huge interest the US gov need to pay one day it may actually default on the bond it issue as what the russia and argentina did in the past

From Paul Krugman:

Where Will the Money Come From?
In the end, the US government will rescue the financial system — not today or tomorrow, maybe not Thursday, but soon, and for the rest of our lives, or anyway until the next crisis.
But, people ask me, where will we get the money? Won’t we have to borrow it from the Chinese?
Actually, no.
Ten years days ago, I explained that the Paulson plan would actually move money in a circle. No outside financing would be needed.
What if we turn to a different and better plan, one that recapitalizes the financial system. Won’t that need outside funds? No.
First, a real-world example, the rescue of Wachovia. The FDIC got Citi to take over Wachovia’s assets and liabilities with a deal under which the feds limit the losses — they will cover any losses on mortgage paper over $42 billion — in return, basically, for receiving a share of ownership, in the form of warrants and preferred stock. No actual money changed hands, which illustrates a fundamental principle: recapitalization doesn’t mean laying out real money, at least initially — it just means having taxpayers take on some of the risk.
A large-scale recapitalization would probably take the form of a giant swap of debt for equity: the Treasury would issue several hundred billion dollars’ worth of bonds, and give them to financial firms in return for preferred stock. The bonds wouldn’t have to be sold to outside buyers — they would simply be credited to firms’ balance sheets.
The effect would be that if the financial firms did well, taxpayers would share in their good fortune via those stock holdings; if firms did badly, they could meet their obligations by selling some of those bonds, which would cut into the value of all their stock, including the stuff Uncle Sam owns. So as in the case of Wachovia, what’s really happening is that the taxpayers are taking on some of the risk.
So is all this magic? No, over time Treasury has to pay interest and principal on the bonds it issues; the value of the bonds comes from the fact that people believe the US government can do that, which ultimately comes from the government’s ability to raise taxes. If investors lose faith in that …
For now, however, none of the rescue schemes we’re talking about involve large-scale net borrowing from abroad.

There's no idea where house prices bottom

Oppenheimer analyst Meredith Whitney i like her for the moment, she is the new idol during the era of writedown. Hope she will still be around after this US recession. This is what she says on CNBC and she is right about citigroup which resulted lot of writedowns for the bank. However she is more famouse due to the timing. While i am sure she is not the first one who predicted this.Nouriel Roubini predicted it during 2005 so is Stephen Roach from Morgan Stanly. Jim Rogers is also correct about the investment banks collapses as this this model with lot of debts cannot last. Rogers is also die correct about Fannie and Freddie Mae rescue.

From CNBC:

The Number One Enemy Of Citigroup

Taxpayers will lose money in the $700 billion government rescue plan for the nation's banking system, Oppenheimer analyst Meredith Whitney said. Contrary to predictions from some supporters of the bailout plan, Whitney said on CNBC that the continued slump in housing prices will make a profit from the bailout unlikely. "I think you definitely lose money on this $700 billion structure," Whitney said. "There's no idea where house prices bottom, and as a result how can you make money on this transaction?" She said home ownership rates are still too high at about 69 percent and need to fall below 66 percent as more subprime mortgages given to less-qualified borrowers unwind. At the same, she said the government may be misallocating assets in the bailout to institutions that do not deserve help. "The government needs to decide who are going to be the winners and who are going to be the losers," she said. "You're basically going to put a lot of institutions on life support that are going to fail ultimately anyway. Why not put capital towards the winners?"

Case-Shiller: House Prices Declined in July

The Bailout may makes US taxpayers $700 Billion to be lose as the housing supply and demand is already out of control. The congress insurance about the bailout is Useless as even AIG need to be rescue by the US Gov. What Insurance is safe?

The first graph shows year over change in both indices.The Composite 10 is off 17.5% over the last year.The Composite 20 is off 16.3% over the last year.More on prices later ... including selected cities.




The Second graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).The Composite 10 index was off 12.3% annual rate in July (from June), and is off 21.1% from the peak.The Composite 20 index was off 10.1% annual rate in July (from June), and is off 19.5% from the peak.Prices are still falling, and will probably continue to fall for some time.

An excellent and scary chart of Fed's Panic

Why the Congress Bailout? The FED can always print money. Just Pump in 630 Billion into banking system yesterday. The strangness of asking the congress for $700 Billion bailout package for wall street makes one to think how serious is the United States Banking Sector. It already way pass trillion and the Banking industry need to pay back.



From Brad Sester Blog:
As Brad notes, this doesn't even reflect anywhere NEAR all of the Fed's actions to try to rescusitate fialed financial system--nor does it reflect the collective actions of the other central banks--in this epic fight to the death between the forces of debt destruction and reflation/monetization/nationalization now underway.In fact, by my recknoning the Fed has well exceeded its original $900 billion balance sheet that was previously backed by Treasuries and is now well into pure (albeit ostensibly "temporary") monetization mode.Yet, just one look at LIBOR, TED spreads or any other metric of credit reveals that the collective efforts of all the central banks and governments of the world has been a dismal failure so far in stemming the credit/derivatives collapse

Harder to get Money In Asia

This is getting Interesting. Everyone saying decouple but with asia properties bubble due to the excess credit from US. Credit markets are drying up in asia. Everyone want to has some reserve cash to weather the coming Global recession.


From Bloomberg:

Asian borrowing costs rose, with Japanese and Singapore money market rates reaching the highest in at least eight months, even as central banks pumped in cash to ease lending after U.S. lawmakers rejected a banking rescue.

Japan's overnight call loan rate rose to 0.6 percent, the highest in more than six weeks, and the three-month interbank offered dollar rate in Singapore jumped 11 basis points, or 0.11 percentage point, to an eight-month high of 3.90 percent as banks hoarded cash. Australian funding costs surged by the most since July.

``Counterparty fear in the banking sector is at a new extreme,'' said Greg Gibbs, director of currency strategy at ABN Amro Holdings Bank NV in Sydney. ``Credit conditions are as tight as a drum. Unless this settles down, central banks would need to cut rates globally to bring funding costs down.''...

The three-month interbank offered rate in Hong Kong rose by the most in nearly a week to 3.664 percent. The difference between the rate Australian banks charge each other for three- month loans and the overnight indexed swap rate jumped 14 basis points to 98 points, close to a six-month high. The gap has averaged 45 basis points this year.

``This crisis is not driven by corporate defaults but by a systematic failure of the banks themselves,'' said Anita Yadav, head of credit and hybrid research at UBS AG in Sydney. ``It's no longer about just paying higher borrowing costs, but also about being able to get the money from the market at all.''

Date for the Mother of All Crashes

The date for Mother of All Crashes will occur around Middle Of Dec 2008.
This may be trigger by the sudden downfall of a major Global Bank and thousand of hedge collapses which in turn resulted a global bank runs from the United States. USD in the long run cannot be substain. BDI is good indicator what in hold for US in the future. In Dec time, when the world investors find out that the US consumers and companies earning have finally stop growing during the holiday season. Thing will become very ugly. The FED may even reduce interest rate to 0% as what the japan did in the 90. The SEC may even curb trading of stocks. This is why right now the most unsafe place to invest is the United States. Alot of people are wary of US financial institutions. Yesterday, Bear Sterns, Tommorrow Lehman what next even AIG almost get bankrupt. What kind of insurance can i get for my US deposits?