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Ft.com - Prepare For The Credit Crisis To Spread


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Hey there, my first post, apologies if this has already been posted. It's well worth a read.

It looks like we're in for a bumpy ride over the next couple of years.....buckle up!

Prepare for the credit crisis to spread

All historic bubbles were accompanied by a sharp rise in leverage. A salient feature of modern bubbles is the emergence of innovative financial products. No matter whether we are talking about junk bonds or modern collateralised debt obligations (CDOs), as Galbraith has pointed out, such products boil down to variants of debt secured on a real asset
By historic standards, our credit bubble is probably one of the largest ever, given the sheer size of the market itself and the degree of euphoria that was characteristic in the final stages of the boom. While the fallout was initially concentrated in the financial sector itself, it would be surprising if the ongoing problems did not trickle down into the real economy. The availability of credit affects house prices and numerous studies have demonstrated the interlinkages between US house prices and US economic growth.
We should remember that the subprime market is not the only unstable subsection of the credit market. Once US consumption slows, we should prepare for a crisis in credit card and car finance CDOs. And once corporate bankruptcies start to rise again as the cycle turns down, both in the US and in Europe, we will probably hear about problems with collateralised loan obligations. The credit market is very deep and offers significant potential for contagion.
In this sense, the debate about whether this is a liquidity or a solvency crisis is beside the point. Banks may look at their CDO investments as a source of temporary illiquidity, but may sooner or later realise that they are sitting on a pile of junk

P.S. HPC is a great site! Glad to know that there are others out there not engaged in this property ramping madness!!

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Hey there, my first post, apologies if this has already been posted. It's well worth a read.

It looks like we're in for a bumpy ride over the next couple of years.....buckle up!

Prepare for the credit crisis to spread

P.S. HPC is a great site! Glad to know that there are others out there not engaged in this property ramping madness!!

Great First Post and WELCOME.

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Great First Post and WELCOME.

cheers , great new arrival, overdue

acrostic ?

Once US consumption slows, we should prepare for a crisis in credit card and car finance CDOs.

dont tell me there are financial products out there based on people paying off a loan on their lexus ? those who have invested in these CDOs should be driven out of town on a rail.

Edited by jimmyjazz
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Funny how this credit bubble / leverage / crisis stuff was just HPC doom-mongering last year but is now mainstream.

I think this is all part of the boom/bust cycle where the media fallover themselves to say we say it coming. All parties say they saw it coming, its the just time-lag that varies.

HPC'rs just got there first. (too early for some)

The rest were just watching for icebergs on the Titanic without binoculars.

VMR

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