How Bad is the Worst?
Objectively, has anyone noticed what has happened to the value of the following assets:
Commercial Bonds: Down
Commercial Real Estate: Down
Commercial Real Estate Loans: Down
Residential Homes: Down
Residential Morgages: Way Down
Municipal Bonds: Down
Private Equity Debt: Down
The value of the above substantially exceeds the value of the entire stock market by multiple times. If debt is impaired, equity is basically worthless. Basically, much of the stuff above is what our banks and insurance companies hold as investments. The value of the investments seem to be declining daily potentially impacting the reserves.
Now money seems to be harder and harder to come by:
Threre were a number of municipal bond offerings over the past few days that couldn't be funded. Corporate offerings are having the same problems. The problem has gotton so bad that AIG's auditors say that there is a "material weakness" in the way AIG reports its asset values on the books. Maybe they got a lesson from homebuilders?
If bonds are defaulting. SWAPS come due. There is not enough money in the world to pay off SWAP liability if there is large scale defaults. Buffet calls SWAPS the WMD of investments. it appears that a number of our financial institutions and funds may be learning the hard way.
If bank or insurance assets keep falling in value, a problem of solvency is becoming a very real issue. If banks and insurance companies don't have enough money to pay their depositors and claims, then what? How will the system function?
Right now municipalities and corporations are having trouble getting funding as evidenced by failed auctions over the past few days. Without funding, the cities can't pay their bills or complete projects.
The situation seems to be deteriorating by the day. AAA rated resididential mortgage CDO's are trading at new lows. This is the high quality stuff. Imagine the BB and BBBs trading at pennies on the dollar.
It is clear that our leaders are becoming increasingly concerned. Paulson today said the Worst is JUST BEGINNING. If it is just beginning, how bad is the worst?