Badly Shaved Monkey
Anti-homeopathy illuminati member
- Joined
- Feb 5, 2004
- Messages
- 5,363
Re: The Credit Crunch, SubPrime Loans, Mortgage Derivatives etc.
In all the coverage of the current financial crisis, the figures made prominent in the media are the trillions of dollars tied up in the US mortgage market and the derivatives developed out of that market, over which, via Fanny Mae, Freddie Mac and AIG, the US taxpayer has now taken on the risk.
But, all these trillions are the total liabilities not the liabilities that have actually turned to unrecoverable debt or are likely to turn to unrecoverable debt.
I know that part of the problem is the difficulty of knowing the extent of the real losses and that this uncertainty is itself a big part of the current problem, but, for instance, how much of that Sub-Prime debt in the mortgage market has gone bad and what proportion does that represent of the whole? I read somewhere that the entirety of the SubPrime bubble was $200billion, which is quite a small % of the total asset base of the US housing stock and not all of that $200b is going to go bad.
In the background, I suppose I am wondering how 'real' the current problem is or whether we are seeing spectacular crashes of companies that geared themselves to a very high degree to clever financial instruments tied to flows of huge amounts of money, but that in reality it is only those companies who made fortunes out of tiny shifts in those fluxes who are now going to go bust when those tiny shifts have headed in the wrong direction. In consequence, the risk to wider economy is then effectively mainly due to the uncertainty not to the size of the actual losses that will ultimately be incurred in a sector of the financial market. In other words, should it be that if the uncertainty is managed well enough then yes, sure, global growth may be shaved by one or two percent, which could even be enough to suppress growth enough to cause the US or UK economies into a "recession" for a period until that effect works through but not so that it makes much difference to most people's lives, which is not quite the same as a global financial meltdown, the risk of which is the subtext of most of the coverage I have read.
In all the coverage of the current financial crisis, the figures made prominent in the media are the trillions of dollars tied up in the US mortgage market and the derivatives developed out of that market, over which, via Fanny Mae, Freddie Mac and AIG, the US taxpayer has now taken on the risk.
But, all these trillions are the total liabilities not the liabilities that have actually turned to unrecoverable debt or are likely to turn to unrecoverable debt.
I know that part of the problem is the difficulty of knowing the extent of the real losses and that this uncertainty is itself a big part of the current problem, but, for instance, how much of that Sub-Prime debt in the mortgage market has gone bad and what proportion does that represent of the whole? I read somewhere that the entirety of the SubPrime bubble was $200billion, which is quite a small % of the total asset base of the US housing stock and not all of that $200b is going to go bad.
In the background, I suppose I am wondering how 'real' the current problem is or whether we are seeing spectacular crashes of companies that geared themselves to a very high degree to clever financial instruments tied to flows of huge amounts of money, but that in reality it is only those companies who made fortunes out of tiny shifts in those fluxes who are now going to go bust when those tiny shifts have headed in the wrong direction. In consequence, the risk to wider economy is then effectively mainly due to the uncertainty not to the size of the actual losses that will ultimately be incurred in a sector of the financial market. In other words, should it be that if the uncertainty is managed well enough then yes, sure, global growth may be shaved by one or two percent, which could even be enough to suppress growth enough to cause the US or UK economies into a "recession" for a period until that effect works through but not so that it makes much difference to most people's lives, which is not quite the same as a global financial meltdown, the risk of which is the subtext of most of the coverage I have read.
Last edited:
