Monday, October 20, 2008

It could be long into 2010 before we know the true value of our banking system’s housing portfolio.

Where The Heck Is The Bottom?

Let’s summarize the “challenges” ahead …. * Home loans. Additional Option ARMs and Interest Only loans are scheduled to reset through 2012. Almost a trillion dollars of debt to roll over, and most of the original loans are “under water”. Many home owners will chose to walk. It could be long into 2010 before we know the true value of our banking system’s housing portfolio. * Housing. In some areas, it will take several years for the market to recover. Start with excess inventory, factor in higher unemployment, and we have a recipe for sluggish sales. Economists appear to be unsure how to measure the impact of the mortgage crisis, the rash of financial institution failures, or the sudden decline of available credit. No one seems to know how to include these three “challenges”

Posted by malct @ 09:19 AM (544 views)
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One thought on “It could be long into 2010 before we know the true value of our banking system’s housing portfolio.

  • from the article :-

    Let’s summarize the “challenges” ahead ….

    * Home loans. Additional Option ARMs and Interest Only loans are scheduled to reset through 2012. Almost a trillion dollars of debt to roll over, and most of the original loans are “under water”. Many home owners will chose to walk. It could be long into 2010 before we know the true value of our banking system’s housing portfolio.

    * Housing. In some areas, it will take several years for the market to recover. Start with excess inventory, factor in higher unemployment, and we have a recipe for sluggish sales.

    * Retail shops. Landlords are currently working with retail tenants to keep the doors open through Christmas. Both struggle to make a buck. But in January, many retailers will throw in the towel. Look for a sharp increase in retail store vacancy signs, accompanied by higher unemployment. Building owners take a revenue hit. More questionable bank loans.

    * Office and Industrial space. Escalating unemployment means increased vacancies. Corporate contraction is inevitable. “Downsizing” becomes a verb. Building owners take a revenue hit. Bankers buy TUMS by the barrel.

    * Commercial loans. This will be an all-to-typical situation. The money has been loaned, and the construction has been completed. But there aren’t enough tenants to carry the paper on a take out loan. Does that spell default? More bad debt on the books of our banking system?

    * Small businesses. Typically undercapitalized, and unable to borrow enough money to meet payroll, small business failures will increase. More bad debt. Thousands of people out of work.

    * Debt defaults. Look for a sharp increase in credit card and auto loan defaults through 2010. Not only will this add to the load of non-performing debt, it will change the economics of the Credit Card industry .

    * Credit. We are in a cycle where a lack of credit triggers loan defaults, leading to even tighter credit markets. Without access to credit, businesses (large and small) are forced to curtail operations, leading to layoffs, expense reduction, and reduced capital investment.

    * Derivatives. The $60 trillion Credit Default Swap mess is starting to unravel. The worst will hit in 2009. And we do not have adequate visibility as to how much other derivative junk will crash.

    * Hedge funds. Redemptions are up, forcing asset sales. Unfortunately, many of these assets are worth less than their original book value. Paper losses will continue to increase into 2009.

    * Government response. People are becoming really frustrated with the failure of our dysfunctional government institutions. There is a clash of political philosophies. Add in a tough job market and one has a recipe for political turmoil. Generally speaking, philosophical conflict is not good for the stock market.

    * Globalization. This crisis is global in nature. If this were a sane world, the response would also be global in nature as governments worked together to resolve the crisis. Instead, look for self serving, politically expedient, and ultimately ineffective nationalistic responses.

    I could add three more critical factors to this list. But I will not. They take a lot of explanation and I am running out of space. Suffice it to say, if I include all these factors in my analysis, they make an ugly contraction highly likely.

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