Of asteroids and credit

In August 2006, when most financial commentators, banks and lenders were asleep at the wheel, I posted a piece on the Guardian’s Comment is Free site predicting that the fall in house sales in Florida and California were canaries in the deep vast coal mine of US credit – and that the impact of a credit/debt crisisand the associated housing crash in the US would have a much greater impact than the then crisis in Lebanon….

I got some pretty rude comments from, amongst others ‘MisterD’ (USA) ‘Bobdoney’ (UK) and others too offensive to credit. ‘Bobdoney’ was particularly rude….”Next week Ann writes about a six mile wide asteroid which has just collided with a butterfly in the Van Allen belt and which even now, as I eat my cucumber sandwich and drink my third cup of tea today, is heading inexorably towards its final destination just off the coast at Grimsby at 2.30pm on 29th August 2016.

Splosh!

It was a fine piece of sardonic commentary. But Bobdoney, while pitching for the Guardian prize of best ‘commenter’ was, like so many other clever ostriches working in the City, a little too focused on honing his writing skills …..Since that piece appeared new home sales in the US are down 32% from their peak, and fell by 16% in January alone…Today the Wall Street Journal and Nouriel Roubini of RGE report on the ‘Splosh!’ created by the sub-prime lending asteroid as it hits US credit markets. The impact of bankruptcies and collapses amongst 30 sub-prime lenders is not a pretty sight……Credit conditions are tightening, and borrowers are having mortgage applications turned down…the impact is spreading from sub-prime to a range of other credit markets……..

What might transform the waves from the impact of this asteroid into a tsunami of defaults, losses, foreclosures and rising insurance costs? …….Roubini quotes Bloomberg as warning that ‘subprime mortgage bonds are falling in part because Wall Street dealers are lending less money to managers of collateralized debt obligations (CDOs) that buy ‘residential mortgage backed securities’ (RMBSs) …..Roubini quotes the trade magazine ‘Inside MBS and ABS’ which warns that ‘rising defaults and foreclosures in the US mortgage market could cause CDOs to pull out of the MBS market ‘potentially toppling the mortgage industry’…….

The asteroid’s impact still has to be felt here in the UK…..Sadly, we’re likely to feel it well before the 29th August, 2016.

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