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Telegraph: Sub-prime Crisis Is The Edge Of A Financial Hurricane

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TELEGRAPH: Business comment: Sub-prime crisis is the edge of a financial hurricane

By Bernard Connolly

Last Updated: 12:47am BST 20/08/2007

"It is hard to overstate the seriousness of the global financial crisis. Yet the world's central monetary authorities - the central banks - have been culpably slow to recognise how dangerous things have become."

..../

"As long as US house prices were rising, it always seemed possible for homeowners who got into trouble to take out additional loans, in effect borrowing to finance their earlier borrowings: a classic Ponzi game."

........./

"But US sub-prime is just the leading edge of a financial hurricane. For far too long, no-one seemed to care if borrowers would be able to service their debts: borrowers themselves seemed not to care; lenders seemed not to care; and investors in the packages of mortgage loans created by banks and sold to institutions such as pension funds seemed not to care. In short, there was a global credit bubble."

Wow this guy is good!!

http://www.telegraph.co.uk/money/main.jhtm.../20/ccom120.xml

Edited by eric pebble

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TELEGRAPH: Business comment: Sub-prime crisis is the edge of a financial hurricane

By Bernard Connolly

Wow this guy is good!!

http://www.telegraph.co.uk/money/main.jhtm.../20/ccom120.xml

Good at what precisely? Go look at the articles he has written for the torygraph over the past two years. If he had half a brain he would have written articles that raised flags about the impending sub prime risk more than a year ago. In fact, if you look at my past five posts you would see he has less insight in to what is happening than me, or even RB ;-) I dont say that as a boast - i am merely admitting I know not a lot and that I am like the rest of you, i.e. strugging during the evening to understand by reading the press and investment books. BC has merely regurgitated a lot of old news. Perhaps we should be working for the Tg RB?

The only worthy part of BCs post is that is good foder for the masses. The rest of what he writes seems like anti european, nationalistic crap.

Now if you want to project just how bad the SP issue will be then mull over the graph below and lets all talk about it.

armresets.gif

Edited by bpw

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Good at what precisely? Go look at the articles he has written for the torygraph over the past two years. If he had half a brain he would have written articles that raised flags about the impending sub prime risk more than a year ago. In fact, if you look at my past five posts you would see he has less insight in to what is happening than me, or even RB ;-) I dont say that as a boast - i am merely admitting I know not a lot and that I am like the rest of you, i.e. strugging during the evening to understand by reading the press and investment books. BC has merely regurgitated a lot of old news. Perhaps we should be working for the Tg RB?

The only worthy part of BCs post is that is good foder for the masses. The rest of what he writes seems like anti european, nationalistic crap.

Now if you want to project just how bad the SP issue will be then mull over the graph below and lets all talk about it.

armresets.gif

:blink: According to the graph it looks as it will get much worse.

Early 2008 will be very interesting for repo figures.

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Good at what precisely? Go look at the articles he has written for the torygraph over the past two years. If he had half a brain he would have written articles that raised flags about the impending sub prime risk more than a year ago. In fact, if you look at my past five posts you would see he has less insight in to what is happening than me, or even RB ;-) I dont say that as a boast - i am merely admitting I know not a lot and that I am like the rest of you, i.e. strugging during the evening to understand by reading the press and investment books. BC has merely regurgitated a lot of old news. Perhaps we should be working for the Tg RB?

The only worthy part of BCs post is that is good foder for the masses. The rest of what he writes seems like anti european, nationalistic crap.

Now if you want to project just how bad the SP issue will be then mull over the graph below and lets all talk about it.

OK bpw -- I am sorry!! I thought his opening paragraphs were a good overall summary - i.e. the bits I have posted in bold italics. And yes - I agree - the rest of the article is just boll@cks. Sorry!

Edited by eric pebble

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TELEGRAPH: Business comment: Sub-prime crisis is the edge of a financial hurricane

By Bernard Connolly

Last Updated: 12:47am BST 20/08/2007

"It is hard to overstate the seriousness of the global financial crisis. Yet the world's central monetary authorities - the central banks - have been culpably slow to recognise how dangerous things have become."

..../

"As long as US house prices were rising, it always seemed possible for homeowners who got into trouble to take out additional loans, in effect borrowing to finance their earlier borrowings: a classic Ponzi game."

........./

"But US sub-prime is just the leading edge of a financial hurricane. For far too long, no-one seemed to care if borrowers would be able to service their debts: borrowers themselves seemed not to care; lenders seemed not to care; and investors in the packages of mortgage loans created by banks and sold to institutions such as pension funds seemed not to care. In short, there was a global credit bubble."

Wow this guy is good!!

http://www.telegraph.co.uk/money/main.jhtm.../20/ccom120.xml

Sorry!! All gone wrong -- didn't mean to post this!!

Edited by eric pebble

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Times article also suggesting that the really bad news hasn't surfaced yet. IMO any rebounds in the SM are a definite selling opportunity.

http://business.timesonline.co.uk/tol/busi...icle2288878.ece

The Times
August 20, 2007
If you thought that it could not get any worse, think again
The market may appear to be stabilising, but many real estate brokers believe there is a plethora of bad loans yet to emergeSuzy Jagger in New York
“I have never seen it as bad as this in 16 years
. It can’t have bottomed out, there are still all those bad loans out there.”
Margaret Massitti is not a Wall Street banker. She is not describing the near10 per cent swing on Wall Street’s equity market over the past month, nor is she referring to the tightening credit conditions across American capital markets. Ms Massitti is a real estate broker in Cleveland, Ohio, and she is describing the residential property market there.
“Lenders will not finance any more. They have cracked down so rapidly that a normal person with very little money is having a really tough time.”
..../
Edited by Realistbear

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Times article also suggesting that the really bad news hasn't surfaced yet. IMO any rebounds in the SM are a definite selling opportunity.

Arent rebounds the only way to sell now that the NYSE introduced trading curbs?

Didnt someone mention you can only sell on an 'uptick' since they've been introduced?

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What he is saying sounds like the standard telegraph anti-euro conspiracy.

He says the ECB caused the asset bubble with their interest rate policies - if it did then why wasn't there an asset price

bubble in Germany? Because banks stuck to prudent lending standards there. It is banks in member countries that directly control asset prices via their lending standards, base rate set by the ECB is only indirectly relevant.

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“Lenders will not finance any more. They have cracked down so rapidly that a normal person with very little money is having a really tough time.”

Gosh! Who would have thunk it!!?! :o

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The resulting carnage in the financial system of the whole euro area will make the present global financial crisis, serious though it is, seem almost insignificant.

I am somehow inclined to think the author has a point here. Well, the carnage has juts started in the US and came over to Europe, but I also think that things will gain momentum once Spain goes bankrupt and Ireland hits rock bottom (and of course the UK). It will make all this much worse, especially fofr people (investors, central banks) who took the EUR as the new reserve currency and safe haven. I don't think the USD is any better, I just think Europe will go down with the US.

Edited by Goldfinger

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I am somehow inclined to think the author has a point here. Well, the carnage has juts started in the US and came over to Europe, but I also think that things will gain momentum once Spain goes bankrupt and Ireland hits rock bottom (and of course the UK). It will make all this much worse, especially fofr people (investors, central banks) who took the EUR as the new reserve currency and safe haven. I don't think the USD is any better, I just think Europe will go down with the US.

I dont agree GF - the real game here is one of global dominance (dollar hegemony) vs. fair share. Its clear the USA is struggling to maintain dominance and the 'god told me to do it' republicans are increasingly isolated from the rest of the world. The EU has a unique opportunity to form strategic fair share alliances with Russia, the Middle East and Asia - if they do then the rise of china and India will be good for the EU. On the other hand the US would rather continue to cheat the world by forcing them to reserve in dollars while they at the same time devalue their currency to pay for their debts. Did you know the US right wing have stated that Irans proposal to sell oil in euros constitutes and act of war? And which nation has started to develop new plans to bridge energy supplies using nuclear power plants? The US position on Iran should be 'yes by all means develop nuclear power well help you, and just in case we'll ask the AEA to account for every atom of fissile material'.

Edited by bpw

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I dont agree GF - the real game here is one of global dominance (dollar hegemony) vs. fair share. Its clear the USA is struggling to maintain dominance and the 'god told me to do it' republicans are increasingly isolated from the rest of the world. The EU has a unique opportunity to form strategic fair share alliances with Russia, the Middle East and Asia - if they do then the rise of china and India will be good for the EU. On the other hand the US would rather continue to cheat the world by forcing them to reserve in dollars while they at the same time devalue their currency to pay for their debts.

I think it's important to remember that all governments operate a level of self interest that other countries need to be cautious of. That is not to defend the US position, but it is to say that we need a healthy level of scepticism when dealing with foreign states. This includes states in Europe, and by extension, the EU (even though we are part of it). I think people aught to read the original article and make up their own minds. Therefore, I repost the link.

http://www.telegraph.co.uk/money/main.jhtm.../20/ccom120.xml

My own position is that it is:

a) Proper tin hat stuff.

B) Reflecting the position of the Toryograph that it appears in.

c) Probably true in parts.

After all, it accuses the ECB of setting interest rates at a level that was good for Germany, in spite of the fact they knew it would cause unsustainable booms in states such as EIRE and Spain. When rates went up, again suiting Germany (and others), these booming states risked a crash, particularly a property crash. We know that is what has happened, so perhaps the more paranoid parts of the article have some merit?

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After all, it accuses the ECB of setting interest rates at a level that was good for Germany, in spite of the fact they knew it would cause unsustainable booms in states such as EIRE and Spain. When rates went up, again suiting Germany (and others), these booming states risked a crash, particularly a property crash. We know that is what has happened, so perhaps the more paranoid parts of the article have some merit?

I gave up following rates in the EU after moving to the USA. That said if you are correct then why did the UK follow suit and where were the objections of the other ~22 states? I remain very suspicious about any press reporting of what 'european union' actually means since there are huge vested interests in the UK. Ask yourself this - would y really rather live in the UK than say France or Germany where house prices, and living standards are higher? For that matter would you really want to live in say Manchester or Leeds instead of living in Madrid or Florence? I wouldn't - the social fabric of the UK is grim and class ridden and the housing fabric is sh*t hole by comparison. Just take one look at the average brit... perhaps it takes a few years living abroad to see it but the fact is Brits for the most part look like brookside scallywags. You all deserve better.

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In contrast, the EU quite deliberately created the most dangerous credit bubble of all: EMU. And, whereas the mission of the Fed is to avoid a financial crisis, the mission of the ECB is to provoke one. The purpose of the crisis will be, as Prodi, then Commission president, said in 2002, to allow the EU to take more power for itself. The sacrificial victims will be, in the first instance, families and firms (and banks and investors) in countries such as Ireland and Club Med

I was taking this quite seriously until i got to this paragraph. Another crank venting spleen. Oh well.

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After all, it accuses the ECB of setting interest rates at a level that was good for Germany, in spite of the fact they knew it would cause unsustainable booms in states such as EIRE and Spain. When rates went up, again suiting Germany (and others), these booming states risked a crash, particularly a property crash. We know that is what has happened, so perhaps the more paranoid parts of the article have some merit?

That's not paranoia, it's inevitable. It's the killer anti-euro argument: interest rates cannot be set to suit every country, or even every region within every country. Anybody who thought rates would be set according to the needs of Ireland rather than of Germany was deluding himself.

The same tensions arise in a single currency area like the USA of course (or even in the UK). Within a country, though, it's easier for imbalances to be mitigated by labour mobility and by public spending.

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I gave up following rates in the EU after moving to the USA. That said if you are correct then why did the UK follow suit and where were the objections of the other ~22 states? I remain very suspicious about any press reporting of what 'european union' actually means since there are huge vested interests in the UK. Ask yourself this - would y really rather live in the UK than say France or Germany where house prices, and living standards are higher? For that matter would you really want to live in say Manchester or Leeds instead of living in Madrid or Florence? I wouldn't - the social fabric of the UK is grim and class ridden and the housing fabric is sh*t hole by comparison. Just take one look at the average brit... perhaps it takes a few years living abroad to see it but the fact is Brits for the most part look like brookside scallywags. You all deserve better.

I'd rather live in Florence than Leeds (my feelings about Leeds are well documented on this board).

However, I would rather live in Oxford than any of the places mentioned. As that is where I do live, my viewpoint is certainly coloured by living in one of the UK's more attractive cities. As to interest rates, Ireland has certainly had a huge boom on the back of low rates (and investment) it is now struggling with centrally set rates, just as its cycle starts to slow. I'm told that the BoE targets inflation, with an eye on the general UK economy. While I personally might quibble with that, I certainly don't think they have ever deliberately tracked the Eurozone.

Edit to add note post from the other side of the argument from bpw:

That's not paranoia, it's inevitable. It's the killer anti-euro argument: interest rates cannot be set to suit every country, or even every region within every country. Anybody who thought rates would be set according to the needs of Ireland rather than of Germany was deluding himself.

That bit, I 100% agree with. Some of the rest of the article might go a bit far, but if we are wary of the intentions of the governments of the US, the UK the middle East and Russia, perhaps we ought to consider whether Brussels is acting in our interests?

Edited by Timm

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I think the bear market will go on. The opportunities will be elsewhere, for a long, long time. The Dow will close below 13000 today, or one of the next days, and markets will be going to suffer because there is more bad news coming for many years. Things are not bottoming out, we have only seen the beginning. Every time the Dow close below a new thousand, there is new people thinking they should sell. The same will happen when the nasdaq goes below 2000. Or the S&P 500 below 1000.

If they lower rates much and fast, then we could enter a blow off phase, but I doubt it, I think the trend is down.

Edited by carseller

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It's true that ECB rates affect everyone, likewise there will be some countries who are advantaged and others that are not. When the USA sets rates it doesn't do it based on the economics of Lousiana or Alabama. It takes a holistic view with the aim of managing employment and inflation in the nation as a whole.

One the whole, the Eurozone has managed to avoid the problems endemic in the USA and UK, where speculation driven by greed has resulted in financial instability. As for Spain ... who is it buying villas in the sun and who is it ramping the markets? I suspect the house price problems in most of the coastal areas are the result of BTLs or two homers.

Edited by bpw

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In contrast, the EU quite deliberately created the most dangerous credit bubble of all: EMU. And, whereas the mission of the Fed is to avoid a financial crisis, the mission of the ECB is to provoke one. The purpose of the crisis will be, as Prodi, then Commission president, said in 2002, to allow the EU to take more power for itself. The sacrificial victims will be, in the first instance, families and firms (and banks and investors) in countries such as Ireland and Club Med

I was taking this quite seriously until i got to this paragraph. Another crank venting spleen. Oh well.

Hmm perhaps he hasn't heard of the yen carry trade?

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It's true that ECB rates affect everyone, likewise there will be some countries who are advantaged and others that are not. When the USA sets rates it doesn't do it based on the economics of Lousiana or Alabama. It takes a holistic view with the aim of managing employment and inflation in the nation as a whole.

One the whole, the Eurozone has managed to avoid the problems endemic in the USA and UK, where speculation driven by greed has resulted in financial instability. As for Spain ... who is it buying villas in the sun and who is it ramping the markets? I suspect the house price problems in most of the coastal areas are the result of BTLs or two homers.

I agree with most of that, including the implication that the Brits have had a share in the inflating of parts of the Spanish bubble. As to the bit I’ve italicised, I don't think we know that yet. We do know that the ECB is very concerned about contamination in some German banks.

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