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alstry (35.68)

The Deadly Part of the Storm

Recs

8

May 15, 2008 – Comments (1)

Anyone who has ever been in a hurricane knows that second half, after the calm of the eye has passed, is the time when the storm causes the most damage.

Recently, more and more experts are now applying this analogy to the credit crisis.

There seems to be sentiment developing that the U.S. has weathered the worst of the current cyclical economic storm and blue skies are ahead. We disagree. Any blue skies you see are likely to be short lived. The economy is in the relative calm of the eye of the business-cycle hurricane. The mortgage credit problems are not over. And credit problems in other sectors are just beginning as the housing recession spreads to the rest of the economy.

http://www.northerntrust.com/popups/popup_noprint.html?http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0805/document/us0508.pdf

May 15 (Bloomberg) -- Blackstone Group LP President Tony James said banks are mistaken if they think credit markets have begun a sustained recovery.

``It's not clear to me if it's a permanent upswing, as I think many of the banks are saying, or the eye of the hurricane,'' James told reporters on a conference call today.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asA0wt7YDt3M

From my perspective, I can't believe anyone could have thought that the credit crisis was getting better.  More foreclosures.  More notices of foreclosure.  More bank failures.  More CRE defaults.  More loan delinquincies.  But I guess if a eye was fabricated, so be it......but get ready because now the really big loans start defaulting.

1 Comments – Post Your Own

#1) On May 16, 2008 at 2:41 AM, alstry (35.68) wrote:

Subprime, about 15% of the mortgage market, was simply the first wave of the  credit crisis.  15% caused about half a trillion in damage.....or two times more than the  S&L crisis. 

WE STILL HAVE over 80% of the storm force yet to come.

Remember, subprime simply refers to a low FICO score and it makes sense those with the weakest ratings default first.  The unprecedented problem with the current housing crisis has less to due with loaning money to people with poor credit ratings but more to do with loaning too much money to houses now worth too little.

Now get ready for the real damage.  HELOCs will be next.  This damage will be much swifter and severe because it is not a mark to market issue but rather a direct loss to the bank.  We know HELOCs deteriorated in Q1 and things look to be getting a lot worse in April and May.

My guess is that the data will start rolling out over the next few weeks and it will be bad.  How bad....just watch.

This next wave will  further weaken our FINANCIAL SYSTEM, one of  my five key systems and directly spilling  over into the other systems.

 

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