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Friday, June 20, 2008

The next level of the ( financial ) crisis

The crisis is intensifying against the phony calls, the worst is over -mortgage rates at nine month highs, monoliners substantially downgraded (although they should even trade at junk-level), foreclosure and bank-ownership of houses is increasing sharply. The problem for the FED is that in order to finance the rescuing of the banks, they had to make sure that the dollar stabilizes and therefore they needed to be serious about supporting the dollar. The money of sovereign funds would not come in without some kind of guaranties. The next effect to stabilize inflation is to turn around the weakness in the dollar, also in order to get a positive spin on stock markets and the election.

Excerpt from CNBC

Moody's Investors Service on Thursday stripped the insurance arms of Ambac Financial Group and MBIA of their AAA ratings, citing their impaired ability to raise capital and write new business.

The monoliners Ambac and MBIA have also been downgraded by Moody's. That will cost banks up to $60 bil, since they have to mark down all their mortgage-related bonds and derivatives accordingly. Citigroup was the only one to admit the consequences so far.

Excerpt from Bloomberg:

June 19 (Bloomberg) -- Citigroup Inc., the bank that's lost more than any other in the collapse of the mortgage market, fell in New York trading after predicting ``substantial'' additional writedowns and more losses on consumer loans. ``We will continue to have substantial additional marks on our subprime exposure this quarter,'' Crittenden said on the call, which was sponsored by Deutsche Bank AG. ``We may continue to see the magnitude of the marks decline, as the exposures that we have have declined.''

This remark does not describe the full impact, since it is not only effecting subprime products and the exposure that Citigroup was beyond $300 bil. with $44bil. of write downs. So far, it does not match any efficient level, which should be closer to half of its exposure, with foreclosures rising even faster and higher mortgage rates and the prospect of further falling house prices.

Excerpt from Bloomberg:

Poole, who turns 71 this week, led the St. Louis Fed bank for 10 years. He was previously chairman of the economics department at Brown University in Providence, Rhode Island.

``There's a lot of pain yet to come in the real estate sector,'' with house prices falling as much as 20 percent from current levels, Poole said. The Fed shouldn't be held ``hostage'' by a troubled industry that prevents it from raising interest rates, he said.

With higher mortgage rates and a weakening economy, it's hard to see how one gets new buyers into the housing market at all. The 15-20% further decrease in house-prices as Poole estimates seems to be realistic. After the elections, the FED will be forced to hike rates, since their beloved core-inflation is poised to rise sharply going forward. Demand for higher salaries will emerge now with the consumer hit very hard by the real inflation, which is far beyond these statistically cooked numbers. That is the inevitable spiral of inflation, once it's triggered, it's hard to control. At some point, we will see a small crash in Bonds when people realize that current levels are far from reality. That carries the next level of crisis in the banking system, since the way they did it in the early 90's to save the 'bankrupt' banks was to create a steep but stable yield curve, so the banks could earn the spread (they borrowed money at 2% and invested it with 4% - that does not sound like a big thing, however imagine for the $1 million you have you can borrow $20 mil and invest them at 4%. Year-end will show 40% profit on the $1 mil.) and with a big leverage, they could re-capitalize. That was a little incident, the last credit crunch - compared to what we are facing now, a different magnitude, one which is comparable to the late 1920's and it will lead to a market crash in the years 2009-2012.

Excerpt from CNBC:

A report on Wednesday showed rates for 30-year fixed rate mortgages -- which closely track the 10-year Treasury -- averaged 6.57 percent in the week ended June 13, up 33 basis points and the highest since July 2007.

The ignorance of most people is amazing but we are now in a stage which might be called a shock, since the ongoing events, which the Bush administration plays down so eagerly, are so severe that everyone's life will be impacted and changed dramatically within the next 2-3 years. This is not one of those cases which will just pass us by and life falls back into its old happy routine. It will take a whole generation to sort it out and the world will not be the same when we are done with it -- I hope for the better. We have reached the point of no return and soon the point of pain will trigger many events, which already are growing slowly. One of these is that the people will revolt against their governments, since those governments have not worked for their people anyway.

Interestingly, I received a video send by a friend, which is an ad for a carmaker - I think it shows the "Zeitgeist" we are heading for - its called 'Revolution'.

Astrologically, it is even amazingly exact on the day of the US elections. On this day, Uranus will be opposite Saturn, which we had last in the mid 60's - you might recall what happened around that time. This time is a bit different since Pluto will be in a T-Square soon after (2010) to both Uranus and Saturn - we had a similar position (in 1931/2) and we all remember the implications, from the depression up to WWII. The 'globalization' is over and we are heading for times of nationalism and the surge in military powers and conflicts. The different thing this time is that, according to the Mayan calendar, we reach the end of the 4th world (26000 year cycle) in order to enter the new 5th.

Even if you even have real interest for the 'esoteric', just by common sense - not listening to the blabbering of the media (propaganda) - you come to the same conclusion. Like it says in an old famous song, "…there is some trouble ahead, ... let's face the music and dance...".

Crisis is always the chance for the betterit's a part of the whole cycle

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