alstry (35.67)

It's not a Credit Crisis

August 21, 2008 – Comments (5)

ITS A DEFAULTING LOAN CRISIS!!!!!!!!!!!!!!!!!!!!

The value of our entire financial system is predicated on borrowers being able to pay back their loans.

We loan money to the banks as deposits and they turn around and lend mulitiple times that amount to homeowners, land developers, shopping center builders, ect......

The banks ability to pay depositors is predicated the bank's borrowers ability to pay the bank.  Residential and Commerical Real Estate have tradionally not fallen too far in value.......so even if the borrowers defaulted, the banks historically recouped a big chunk of their capital by foreclosing.

This time is different, very very different....real estate is crashing in value both in amount and speed.  Now when banks foreclose, they are only recovering fractions of their loans.........this is something America has never seen before on such a large geographical scale.

The media calls this a credit crisis.  It is not.  It is a loan defaulting crisis.  Right now many banks are reserving less than 5% of the non performing loans.  Clearly, they are hiding behind historical recovery rates and not applying current market conditions.

This is why it is obvious we are still in the FIRST INNING of a long long game.  The problem is that as more and more loans default, more and more homes will be foreclosed and more and more businesses will shut down causing unemployment to skyrocket.

Until the banks come clean with their current loan conditions.....there is little doubt where this is heading as loan defaults continue to rise.  The loans are defaulting not because this is a credit crisis.....it is a shrinking revenue disaster forcing the borrowers to default.

Now imagine what happens if tensioins rise with Russia and oil deliveries to Europe becomes questioned?????