Trumpo confident the Americans wont let us down.
In what can only be described as a huge shock the US Govt. vote against the rescue of the Amercian economy. It will be overturned, it must be.
Trumpo can only think that people are playing politics, and not economics.
This rescue deal is required for the world economy, not just the American economy. What people don’t realise is that this is not new money, it’s money to absorb current mortgages, not new ones. New mortgages are important - but we have to find a lender or Govt. for the tens of millions of people who are currently paying penal inter-bank interest rates on their home loans that are simply unaffordable.
These tens of millions of people need to be on low, affordable interest rates and if they are to be UK or US Government controlled mortgages then it will put some form of normality into the money markets.
We need to bang the politicians heads together both here and in the UK and deal with this as a United World Economy.
Your confident Trumpo.
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September 30th, 2008 at 3:21 pm
Oh, Trumpo, glad to hear you’re still holding up. But, mate, please don’t continue with the trap that this is a US housing market problem. I know this is the standard media propaganda; don’t be fooled by it.
Consider the following: The US housing stock is worth about $23 trillion. Total mortgages outstanding are around $12 trillion (plenty of equity there, then). Subprime mortgages account for $1.8 trillion of that total.
Now, let’s assume that all the subprimes are, without exception, 100% loans (no net equity) and then let’s assume that the underlying property has fallen by 80% in value (pretty aggressive, don’t you think?). On that basis, the lenders would be out about $1.4 trillion if they recognised the defaults, foreclosed immediately and sold everything, effectively liquidating the liabilities. Pretty big, eh?
OK, so let’s look at what has actually happened in markets. Last week alone, the Fed injected over $800bn into the banking system (the Fed, of course, have been injecting huge amounts of capital for months). In addition, they announced a further $640bn injection yesterday. Those amounts alone fully offset a total default and massively discounted sale of all subprime mortgaged assets. We haven’t even touched upon the capital that other central banks have injected (for example, some estimate that the BOE, through their Special Liquidity Scam, I mean Scheme, have already handed over $360bn), or the $200bn + that banks have been able to raise through new equity.
So, even assuming that every single subprime mortgage has defaulted (in fact, around 45% are delinquent) and assuming a much greater fall in underlying security value than is the case, the authorities have already pumped in far more money than is necessary to clear all subprime and other delinquent mortgages!
What is really going on? The answer is to be found in the derivatives markets which, in total, are bigger than global GDP, and are many times the size of the entire US stock and Treasury markets. As one example; JP Morgan has about $1.8 trillion of assets with about $90 trillion of derivatives exposure. Over 90% of derivatives are OTC (i.e. not exchange traded and hence not subject to any regulation or protection). These contracts are largely speculative with no underlying economic basis.
The truth behind the domino-like collapse of financial institutions is to be found in their derivatives exposures. Unlike the subprime mortgage market, this is far too big to bail out. The sad fact is that the US $700bn ‘rescue package’ is a sop, a simple confidence trick. It is already dwarfed by what the Fed has done and is, in economic terms, practically irrelevant.
Sorry to be the bearer of such bad news; the housing market lie needs to be nailed, though. Good luck and keep your head down.
September 30th, 2008 at 4:24 pm
Anchorage;
I cant disagree with any of your comments; but to get through this we do need positive momentum - something is better than nothing and at this moment in time I feel like we have to move forwards not backwards, if that means a huge correction/crash - then so be it.
It just feels very uncomfortable because we are in unchartered waters and its the first time I cant really hazard a guess which way it will go!
September 30th, 2008 at 6:09 pm
Sorry Trumpo I have to agree with anchorage on this one and if they want to try and pull the wool over our eyes, I hope to see the WallStreet 3 doing a national exchange with the NatWest 3, using the same terrorist legislation to extradite them in reverse……………but don’t hold your breath.