Will The Us Credit Crunch Reach These Shores?

[equitystasher]

Seeing what is going on in the money markets at the moment can someone explain to a economics ignorant like me if and how this will affect the Great British Public in getting a mortgage or any other type of loan.

Am I right in saying that UK Banks are going to find it much harder to repackage a mortgage and sell the debt on so we are looking at higher rates and stricter standards of lending? If so what sort of time frame would we be looking at before we see any action happening here?

[loafer]

The capital markets have closed, and are unlikely to reopen until September.

This means, banks are having to hold loans on their balance sheets by borrowing on the money markets. The trouble is that the cost of banks borrowing has also shot up, with some US banks now costing over 100bps. This is an insanely large spread.

Essentially this means that the only way a bank will lend at the moment is on very profitable terms to take account of the holding cost and market risk. Once existing mortgage credit lines run out, and new ones are repriced, the cost to the consumer will rise significantly.

Of course, it could all sort itself out and we could go back to where we were, but I doubt it.

[Goldfinger]

The capital markets have closed, and are unlikely to reopen until ...

2012-2015, or later.

[redwing]

It already has reached the UK - at least for businesses.

Look at the sell offs at Mitchells & Butler (pubs), Cadbury's (Dr Pepper) and Alliance Boots (the whole shebang) going pear-shaped.

[OnlyMe]

It already has reached the UK - at least for businesses.

Look at the sell offs at Mitchells & Butler (pubs), Cadbury's (Dr Pepper) and Alliance Boots (the whole shebang) going pear-shaped.

Funny really, same as usual it is the stockmarket that reacts first, not just individual cases but the whole market to a certain extent is uprated thatnks to easy money fuelling another buyout somehwere around the corner.

What I'm looking for is the contagion to visibly affect UK sourced MBS. Two main routes.

1) There are quite a few US outfits operating in the UK in the mortgage market - their investors/funding parties may make them pull back from riskier loans in the UK as well as the US or they may decide to do so themselves.

2) European purchase of MBS - £10bn's of UK derived housing equity is being funnelled into the Eropean MBS market - so much so that 50% of it is sourced from the UK. Somebody is buying all of this stuff, nobody seems to know who - maybe primarily German investors/banks? If so the sight of one German bank having to be publicly bailed out due to subprime US fallout may cause others to reassess their position in buying up UK mortgage product.

[?...!]

Funny really, same as usual it is the stockmarket that reacts first, not just individual cases but the whole market to a certain extent is uprated thatnks to easy money fuelling another buyout somehwere around the corner.

What I'm looking for is the contagion to visibly affect UK sourced MBS. Two main routes.

1) There are quite a few US outfits operating in the UK in the mortgage market - their investors/funding parties may make them pull back from riskier loans in the UK as well as the US or they may decide to do so themselves.

2) European purchase of MBS - £10bn's of UK derived housing equity is being funnelled into the Eropean MBS market - so much so that 50% of it is sourced from the UK. Somebody is buying all of this stuff, nobody seems to know who - maybe primarily German investors/banks? If so the sight of one German bank having to be publicly bailed out due to subprime US fallout may cause others to reassess their position in buying up UK mortgage product.

Nobody wants to create a fund to buy up securities any more, because following Bear Stearns debacle the price of default swaps are hideous.

Insuring a $10 million loan costs upwards of $300,000. There is no room for any profit.

The people who own the capital do not want to give it away to morons, via bad debts. The morons cannot be trusted with it any more, so the price of that trust has sky rocketed.

The credit market is very globalised. This is already here.

Edited August 4, 2007 by ?...!

[equitystasher]

Sounds fom what has been said that we don't really know if the turmoil in the US will affect UK mortgages yet.

I suppose we will have to wait and hope for MoM falls of the house price index before Uk banks become jittery and decide to pull back on its lending criteria.

[Charlie Don't Surf]

The capital markets have closed, and are unlikely to reopen until September.

Could you explain what that means? Are they actually on holiday?!

[Goldfinger]

... - maybe primarily German investors/banks?

German insurers & smaller/local banks, I suppose. The plan of action is closing their eyes and hoping the best. Then, after a while, panic-selling. Insurers might HAVE to sell, though.

[domo]

All this credit deflation before any real panic or bear market has started, were heading for a crushing deflation, joe public can kiss goodbye to their credit cards, consumer loans cars on finance and easy mortgages. In short their f**cked.

[equitystasher]

All this credit deflation before any real panic or bear market has started, were heading for a crushing deflation, joe public can kiss goodbye to their credit cards, consumer loans cars on finance and easy mortgages. In short their f**cked.

Explain how this plays out to the British consumer please and a time window.

[Guest tbatst2000]

Are they actually on holiday?!

No, but the people that run them all are (literally)... All it means is that nobody is making big loans right now whilst they 1. wait and see what happens or 2. try and sell off the backlog they've already bought. Having said that, new bond issues from governments and high quality corporates are still going through, it's just the junk bonds, mortgage backed stuff, syndicated loans for leveraged buyouts and all derivatives thereof (CDOs, CLOs, CMOs, ABSs etc) that no-one's buying.

[?...!]

Explain how this plays out to the British consumer please and a time window.

Basically, spending money that is not yours will become more expensive.

I have consistantly come to this forum to tell people that this was the worst time in history to take on debt.

Risk has been mispriced globally since 9/11, to delay a US recession. Well guess what, the delay is over.

See all that money that people have been spending over the last six years... Now it wants to go home. That means Joe Public has to work his ass off as his bills rise and his wages do not.

Rest assured though...

One day, soon, the markets are going to realise the price of credit is going to stay high. And they will say "shit!" unanimously. Shortly after this day Al Qaeda will strike again. Forcing the Fed to repeat this nasty process of endebting their population.

The war on terror will last 40 years. And in my opinion the US is a serious under dog. They have misunderestood what they are up against. They are not fighting a war they are being led into a cycle. And they (rather stupidly) have followed.

.

Edited August 4, 2007 by ?...!

[mew too]

It will most certainly affect city bonuses this year, I know someone who works at a large IB says IT budgets are being slashed and some desks are having to taking massive debt hits on their books, redundancy will probably follow - traders bonuses potentially gone (also follows for IT, support, ops etc) No big bonus excuse this Christmas, London HP's will suffer...

[jonpo]

consider what happens this cycle if the fed reserve cuts rates to 1% again like that idiot Crammer would like. this time the dollar is at 26 year lows cuting interest rates would make the $ toa$t speculative capital would vanish from the US dollar like piss running down the side of a urinal. our trade with the US would be screwed and UK plc would catch grade 5 exchangalenza .

[?...!]

consider what happens this cycle if the fed reserve cuts rates to 1% again like that idiot Crammer would like. this time the dollar is at 26 year lows cuting interest rates would make the $ toa$t speculative capital would vanish from the US dollar like piss running down the side of a urinal. our trade with the US would be screwed and UK plc would catch grade 5 exchangalenza .

The terrorists have the US over a barrel.

Al Qaeda want to be associated with market crashes and recessions. That way they can plunge the US into a recession every time they attack. They would have access to an infinate source of money by going short.

It is obvious Bin Laden timed 9/11 to co-incide with the dotcom crash. The Fed cut their rate in a very damaging manner to avert 9/11 and Al Qaeda being associated with a recession. The idea probably being they could find these people before a second cycle ever set off. The subprime fallout is the concequences of this policy. The risk is being realised and the terrorist are still out there. It is a rather worrying time.

This is the war. It is an invisible war, and we as a population are paying the price. We are in an economic war like never before.

How can we stop this? We have to stop these people and their message.

Edited August 4, 2007 by ?...!

[loafer]

Could you explain what that means? Are they actually on holiday?!

Sorry - been out.

The markets are always quiet in August, and yes, alot of people are on holiday, but the difference this time is that all the investors are completely out of the market because no-one knows how to price anything.

[South Lorne]

The terrorists have the US over a barrel.

Al Qaeda want to be associated with market crashes and recessions. That way they can plunge the US into a recession every time they attack. They would have access to an infinate source of money by going short.

It is obvious Bin Laden timed 9/11 to co-incide with the dotcom crash. The Fed cut their rate in a very damaging manner to avert 9/11 and Al Qaeda being associated with a recession. The idea probably being they could find these people before a second cycle ever set off. The subprime fallout is the concequences of this policy. The risk is being realised and the terrorist are still out there. It is a rather worrying time.

This is the war. It is an invisible war, and we as a population are paying the price. We are in an economic war like never before.

How can we stop this? We have to stop these people and their message.

..."How can we stop this"?.......by getting rid of the stooges in our government who created the dive for low interest rates to camouflage declining economic activity and claimed the resultant borrowing spree was growth. Also there could be a high level fraud investigation into the bad lending ....who suffers.....?...... the customers, investors and Joe Public......these lenders in many cases by creating the bubble, have committed treason..... why is the Government frozen in action....because they are part of it...? .....educate the public....this is your battle field ....not Iraq or Afgahnistan......

[DoctorJ]

I've been trying to keep track of all this stuff in the US and trying to figure out how it may/will effect us here in the UK - so thanks to the OP for asking the question.

from the responses it looks like we're in for some fun for the next few weeks. yey

[Guest tbatst2000]

I've been trying to keep track of all this stuff in the US and trying to figure out how it may/will effect us here in the UK - so thanks to the OP for asking the question.

from the responses it looks like we're in for some fun for the next few weeks. yey

One bit of fun should be watching the various hedge funds holding credit derivatives of one sort or another admit one by one that they've lost a huge amount of cash during July. Hedge funds invested in illiquid products mostly come up with an official net asset value once a month and, now that July month end has passed, the numbers will start to come in. Expect a lot more fund closures over the coming weeks. If we're really lucky, there might even be a real high profile fatality (i.e. a big bank that everyone's heard of rather than a fund managed by an IB that no-one outside of finance has ever heard of).

[?...!]

..."How can we stop this"?.......by getting rid of the stooges in our government who created the dive for low interest rates to camouflage declining economic activity and claimed the resultant borrowing spree was growth. Also there could be a high level fraud investigation into the bad lending ....who suffers.....?...... the customers, investors and Joe Public......these lenders in many cases by creating the bubble, have committed treason..... why is the Government frozen in action....because they are part of it...? .....educate the public....this is your battle field ....not Iraq or Afgahnistan......

If I was in Greenspans position on September the 11th I like to think I would have the balls to make the call that he made. Thankfully I will never know.

His 1% policy was an incredible move.

History will judge Alan Greenspan to be a terrible man, a man who cost the people of the United States, the greatest economy to ever exist. He knew that when he took the Fed all the way down to 1% he was sacrificing all his lifes work, the very reputation that made him who he was. He did this to keep the bloody hands of terrorists off the prized endevours of the people of the free world.

If the dotcom recession had been allowed to unfold naturally there was a very serious and real risk it would be attributed to terrorism. The recession had to be delayed. Greeenspan delayed knowing it would cost him his reputation.

He could have done nothing and retired a highly esteemed American icon. Nobody would have realised the Fed could have done something to fight terror.

Greenspan knew he could help, and so he sacrificed himself. Bernanke has simply picked up the script that was written in October 2001.

Your government are not trying to kill, rob, destroy you. They live in this country too, and so do their children.

.

Edited August 4, 2007 by ?...!

[South Lorne]

If I was in Greenspans position on September the 11th I like to think I would have the balls to make the call that he made. Thankfully I will never know.

His 1% policy was an incredible move.

History will judge Alan Greenspan to be a terrible man, a man who cost the people of the United States, the greatest economy to ever exist. He knew that when he took the Fed all the way down to 1% he was sacrificing all his lifes work, the very reputation that made him who he was. He did this to keep the bloody hands of terrorists off the prized endevours of the people of the free world.

If the dotcom recession had been allowed to unfold naturally there was a very serious and real risk it would be attributed to terrorism. The recession had to be delayed. Greeenspan delayed knowing it would cost him his reputation.

He could have done nothing and retired a highly esteemed American icon. Nobody would have realised the Fed could have done something to fight terror.

Greenspan knew he could help, and so he sacrificed himself. Bernanke has simply picked up the script that was written in October 2001.

Your government are not trying to kill, rob, destroy you. They live in this country too.

.

.....there are choices when you are at war ....destroying your economy is the wrong one....

[equitystasher]

If I was in Greenspans position on September the 11th I like to think I would have the balls to make the call that he made. Thankfully I will never know.

His 1% policy was an incredible move.

History will judge Alan Greenspan to be a terrible man, a man who cost the people of the United States, the greatest economy to ever exist. He knew that when he took the Fed all the way down to 1% he was sacrificing all his lifes work, the very reputation that made him who he was. He did this to keep the bloody hands of terrorists off the prized endevours of the people of the free world.

If the dotcom recession had been allowed to unfold naturally there was a very serious and real risk it would be attributed to terrorism. The recession had to be delayed. Greeenspan delayed knowing it would cost him his reputation.

He could have done nothing and retired a highly esteemed American icon. Nobody would have realised the Fed could have done something to fight terror.

Greenspan knew he could help, and so he sacrificed himself. Bernanke has simply picked up the script that was written in October 2001.

Your government are not trying to kill, rob, destroy you. They live in this country too, and so do their children.

.

A over reaction costing the hard working people in America more like. But he cannot be isolated as over reaction is something the Americans in general have been good at the last few years when they have been under threat. But back to the plot.

So a credit crunch here by November to coincide with a rate increase and MoM national house price falls..............me hopes

[?...!]

.....there are choices when you are at war ....destroying your economy is the wrong one....

It is not destroyed.

If the recession was allowed to run, and became wrongly associated with 9/11. Imagine what that would mean.

It would mean investors assume recessions succeed terrorist attacks. Any terrorist attack would then be succeeded by a massive sell off and... a recession.

That would be a destroyed economy.

The US can recover, they just need to win the war on terror then pay off their vast debts. A tall order, I admit.

I'm expecting a day "in the coming weeks" when traders give up hope of cheap credit returning and sell, and sell, and sell. Shortly after this Al Qaeda will be wanting to do something like a repeat of 9/11 to capitalise on a falling market, forcing the Fed into another inflationary cycle, reducing the value of the dollar and the value of US GDP against the price oil, slowly forcing Americans into poverty by diminishing their earnings. Watch as the number of terror alerts rise following any market correction.

The problem for the US is that they are fighting a shadow there is no sovereign state to blame, just a network of 10,000 men strewn across the globe spreading their ideology. It is a very sophisticated enemy.

.

[South Lorne]

It is not destroyed.

If the recession was allowed to run, and became wrongly associated with 9/11. Imagine what that would mean.

It would mean investors assume recessions succeed terrorist attacks. Any terrorist attack would then be succeeded by a massive sell off and... a recession.

That would be a destroyed economy.

The US can recover, they just need to win the war on terror then pay off their vast debts. A tall order, I admit.

I'm expecting a day "in the coming weeks" when traders give up hope of cheap credit returning and sell, and sell, and sell. Shortly after this Al Qaeda will be wanting to do something like a repeat of 9/11 to capitalise on a falling market, forcing the Fed into another inflationary cycle, reducing the value of the dollar and the value of US GDP against the price oil, slowly forcing Americans into poverty by diminishing their earnings. Watch as the number of terror alerts rise following any market correction.

The problem for the US is that they are fighting a shadow there is no sovereign state to blame, just a network of 10,000 men strewn across the globe spreading their ideology. It is a very sophisticated enemy.

.

...if you look back in the thread I was talking about the UK and you suddenly started talking about Greenspan...well that's OK because G Brown did the same thing here.... lowering interest rates to create a boom....... and repeating the '88 path to bust for the speculators and others ....history repeats......nothing to do with Al Quaeda...just Chancellors that can't read markets....