Tuesday, Aug 26, 2008
As the US housing market continues to collapse, trillions of dollars in equity and credit are disappearing in a deflationary bonfire.
SOTT various: Signs Economic Commentary for 25 August 2008
As the US housing market continues to collapse, trillions of dollars in equity and credit are disappearing in a deflationary bonfire. When a $400,000 home--with no down payment and negative equity--goes into foreclosure; $400,000 vanishes from the digital-pool of credit and has to be written down as a loss. So far, much of the losses have not yet been accounted for because the banks are using their own internal models for determining the value of their downgraded assets. Two weeks ago, Merrill Lynch sold $30 billion of mortgage-backed junk for 20 cents on the dollar. But they also financed the deal, which means that they really only got 5 cents on the dollar! This reflects the true "market value" of these assets. They are virtually worthless.
4 Comments
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1. malct said...
And just what incredible expertise do Syron and Mudd possess? They made billion-dollar blunder after billion-dollar blunder; they failed to realize things as basic as buyers borrowing without documentation of income may not be able to repay loans. People chosen at random from the phone book could hardly have performed worse. Yet the federal bail-out legislation just signed by George W. Bush does not require them to give back any of their ill-gotten gains.
This is the core lesson of CEO overpay scandals: The corrupt or incompetent executive always keeps the money. He may be caught and embarrassed by bad press, but he keeps the money while someone else -- shareholders, taxpayers, workers -- is punished.
2. japanese uncle said...
Nothing is lost but just changed hands.
3. malct said...
quite - ...I called my friend who manages a whole pile of money expecting him to have some keen insight - the kind that comes from pushing 9-places left of the decimal point around. His answer - which I'll paraphrase loosely - went something like this:
"What's happening is that the price of the metal at retail has little to do with the exchange prices of silver because the physical is such a small part of the market.
In other words, the physical price is being swamped by the financial price. Sure, you can see shortages of physical, but that's such a tiny piece of the LEVERAGE game that it's almost insignificant."
Oh, oh. I'm starting to 'get it'. As long as there's enough paper in play, we can have a complete disconnect from physical prices.
4. malct said...
2. japanese uncle said...
Nothing is lost but just changed hands.
Tuesday, August 26, 2008 08:58AM
The Greatest Transfer of Wealth in History
Bob Moriarty
Archives
August 10, 2008
I’ve made it clear for a year that I believe we have entered what will be the most serious depression in history. It also will involve the greatest transfer of wealth in history.
There are two basic classes of assets. There are paper assets and real assets. An ounce of gold is a real asset. A copper mine is a real asset. A house is a real asset. An oil field is a real asset.
Over the counter derivatives now total over $596 trillion dollars, (click here [pdf]) ten times the size of the world economy. Those are paper assets, their value is derived from some other asset. That derivative size is what is going to destroy the world’s financial system, it’s all fraud.
http://www.321energy.com/editorials/moriarty/moriarty081008.html