Sunday, June 24, 2007

Is This The Begining of the End

BIS warns of Great Depression dangers from credit spree

S2R1,Is this the wave?

Posted by dobber @ 06:58 PM (484 views)
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12 thoughts on “Is This The Begining of the End

  • Another article shooting a warning shot over the bows, can anyone translate this phrases into everyday language though ‘mass issuance of new-fangled credit instruments’ as it’s beyond my wit?

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  • Another article shooting a warning shot over the bows, can anyone translate this phrases into everyday language though ‘mass issuance of new-fangled credit instruments’ as it’s beyond my wit?

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  • enuii,

    Credit derivitives…..pools of outstanding loans, mortgages, HPI etc. bundled together, ‘re-packaged’ into mixed segmants of debt and resold as bond type investments to people who (probably)do not understand what they are, how they work, or what happens when the credit bubble pops (Unfortunately this includes many pension funds)

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  • Yeah, I have an idea of what that means.

    When a bank lends you money for a mortgage its seen as a very safe bet – if you default they get the house, if they default they sell your debt. Risk free.

    So what they do is to sell riskier financial products based on your mortgage. This process moves up a food chain to really risky spread bet hedge funds. Those are the ‘mass issuance of new fangled credit instruments’.

    I’ve been thinking hard about this issue this weekend and I seriously think we’re heading for a depression at least the size of the Asian Financial Crisis. It’s gonna be bad.

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  • Paul, when does it kick in?

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  • It’s starting to kick in now. The full realisation won’t kick in until there a big confidence knock. That might never happen, but lets just say that the propensity for it to happen has increased dramatically in the last six months.

    My bet? We’ll see tears before the leaves fall off the trees this year.

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  • Paul, have been coming to the same conclusion myself over the last week or so and I am almost at the point of a major financial retrenchment, lets just say that my trigger finger is not quite itchy enough to pull the trigger just yet.

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  • The BIS joins the IMF, the OECD, the NIESR, Mervyn King, Alan Greenspan and a litany of highly regarded economists in warning us of big problems ahead for the global economy, the global banking system and the global property market. Who have we got on the other side of this debate? Various Heads of Sales at Estate Agents? Mouthpieces for mortgage lenders? David Smith? ………….YIKES!!!!!!!!!!!!!!!!!!

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  • ‘mass issuance of new-fangled credit instruments’ = CDOs

    Banks have been lending money for mortgages. Then packaging their entitlement the future stream of interest payments as a ‘mortgage bond’ (=CDO), which they sell to hedge funds and pension funds. The money they receive for the bond can be lent out to new mortgagees whose future interest payments can be turned into a bond….and so on. Thus, banks create credit at will. Another way of looking at it is that the commercial banks are now solely in control of the money supply and they have turned the taps full on. Under the current system, central banks are powerless to do anything about it. There is no easy or clever way out of the pickle the markets have got us into.

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  • japanese uncle says:

    Crying wolf is not something one may not wish to do. But warning about the clear and present danger ahead in the financial markets is something that should be done by a responsible person, unlike a thug who yelled ‘weapons of mass destruction’ dozens of times in a teary voice just to serve the agenda of his real master, killing tens of thousands including his own countrymen in the process.

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