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Brace yourself for the insolvency crunch
Posted by Ambrose Evans-Pritchard on 23 Aug 2007 at 17:38
Tags: Economics, Markets, Insolvency crunch, Subprime crisis
"The liquidity crunch is not yet over: the insolvency crunch has hardly begun....
...theworld has changed, dramatically. Whether this means a protracted globaldownturn and a “profits recession” depends on how quickly the centralbanks choose to respond, and how far they are willing to go.
BenBernanke is looking hawkish to me, given the shock of what happened onMonday when yields on 3-month US Treasury notes plunged at the fastestpace ever recorded, a panic flight to safety that no living trader hadever seen before.
Why? Because trust had collapsed to such adegree that players with a lot of cash no longer believed it safe toleave wealth in bank accounts, or the money market funds of brokeragecompanies - (exposed as they are to short-term commercial paper andsubprime CDOs). This did not occur after 9/11, or in the heat of theOctober 1987 crash. Nor did was there such a banking panic in October1929. (it hit in August 1931). If you think this is of no importance,or that this will pass swiftly, you have a strong nerve.
“Whenyou have a run on the money markets like this, it is bound to spillover into the real economy,” said Albert Edwards, global strategist atDresdner Kleinwort.
"We already thought there was a 40pc chance of aUS recession before all this happened, but the risks are now muchhigher and don't forget that rates on adjustable mortgages will keeprising until a peak next March, so the maximum pain will be in thesecond and third quarters of 2008,” he said
“There will belarge bankruptcies, and liquidity is not going to help because too manypeople bet the farm at the top of the cycle, and they're now insolvent.A lot more bodies are going to be floating to the surface before thisis over,” he said...."
Brace Yourself for the Liquidity Crunch - UK Telegraph
Posted by Ambrose Evans-Pritchard on 23 Aug 2007 at 17:38
Tags: Economics, Markets, Insolvency crunch, Subprime crisis
"The liquidity crunch is not yet over: the insolvency crunch has hardly begun....
...theworld has changed, dramatically. Whether this means a protracted globaldownturn and a “profits recession” depends on how quickly the centralbanks choose to respond, and how far they are willing to go.
BenBernanke is looking hawkish to me, given the shock of what happened onMonday when yields on 3-month US Treasury notes plunged at the fastestpace ever recorded, a panic flight to safety that no living trader hadever seen before.
Why? Because trust had collapsed to such adegree that players with a lot of cash no longer believed it safe toleave wealth in bank accounts, or the money market funds of brokeragecompanies - (exposed as they are to short-term commercial paper andsubprime CDOs). This did not occur after 9/11, or in the heat of theOctober 1987 crash. Nor did was there such a banking panic in October1929. (it hit in August 1931). If you think this is of no importance,or that this will pass swiftly, you have a strong nerve.
“Whenyou have a run on the money markets like this, it is bound to spillover into the real economy,” said Albert Edwards, global strategist atDresdner Kleinwort.
"We already thought there was a 40pc chance of aUS recession before all this happened, but the risks are now muchhigher and don't forget that rates on adjustable mortgages will keeprising until a peak next March, so the maximum pain will be in thesecond and third quarters of 2008,” he said
“There will belarge bankruptcies, and liquidity is not going to help because too manypeople bet the farm at the top of the cycle, and they're now insolvent.A lot more bodies are going to be floating to the surface before thisis over,” he said...."
Brace Yourself for the Liquidity Crunch - UK Telegraph
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