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When Your Earnings Come Slow And Hard, And Your Losses Come Hard And Fast ...

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One of my favourite bloggers. Another American woman who knows how to crunch the numbers, and she occasionally gives a good oversight on the world economy. She writes some personal stuff as well.

She's in the same mould as Calculated Risk - "things are bad, and will continue to be bad, but not THAT bad".

But this does look BAD! I would appreciate any UK source that genuinely talks about our level of delinquency and write offs.

But seriously dude, take a look at Q2 Bank Charge Offs and Delinquencies. Delinquencies hit a new high at 7.32% SA. Charge offs dropped to 2.86%, but how much can that mean if delinquencies are still rising overall?

When you look at the details, your heart quails. After all, charge offs dropped 21 basis points on residential mortgages. That's pretty significant, and much better than the overall drop in charge offs of a measly six basis points. Now look at delinquencies for residential mortgages, and they rose 45 basis points to a shocking 11.40%. (1,140 basis points). Delinquencies on credit cards dropped 69 basis points, but charge offs rose to 10.66% from 10.07%.

It will take a while.


The real reason some banks think they can get away with this is because they dumped the risk for some of their worst mortgage loans onto the government. But I think they haven't entirely. I think that a lot of politicians are going to hit the streets and that there will be something of a day of reckoning when the GSEs come back to certain entities and hand them back their lovelies, the entities tromp off to their Congressional feeding trough, and get rebuffed.

Mortgages are huge chunk of the problem - when you look at interest rates earned versus accrued losses, it becomes clear why the charge off/delinquency ratio is so high this time. And the ability of banks to cover this from their current earnings has peaked - now we are in the era of declining net interest.


Now, I am fascinated to note a sudden spate of articles suggesting that Fannie, Freddie and FHA (rarely named explicitly) should be shut down and the losses then covered by the government. This tends to exclude the "unmitigated asses" theory of US bankers, because doing so would protect these banks from the inevitable handbacks which must ensue after the last 18 months of handoffs to the GSEs.

It's important to reiterate this. Large US banks were deliberately taking their bad loans and rewriting them as GSE loans or FHA insured. Thus, they believe their only remaining problem is to make sure that these entities will not be able to come back to them and make rude noises such as "your appraisal value was wildly inflated - take it back!" And the means that they have chosen to accomplish this are the shutdown of these entities.


Edited by okaycuckoo
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  • 440 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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