Consumer Credit And Mortgage Backed Bond Failure Looms ... System Wide Financial Emergency Could Happen At Any Time
Wednesday, 14. May 2008, 03:26:05
I. Failure Of Consumer Credit Looks More Likely
The Financial Ninja relates that the Federal Reserve Statistical Release on Consumer Credit was freakish. The annual rate of increase in revolving credit card debt was nearly 8% in March, more than double the annualized rate of increase in wages.
Shares of commercial credit provider CIT Group, CIT, fell lower; and consumer credit World Acceptance Corp, WRLD, turned lower, manifesting the lollipop hanging man candlestick.
Diviversified credit provider, Capital One Financial,COF, simply fell 4%.
Bank Of Amercica, BAC, Citicorp, C, American Express, AXP, Capital One Financial, COF, and Orix, IX constitute the commercial credit infrastructure that underpins consumer credit and commeical lending.
The "credit crunch" is going to quick morph to become "credit gridlock": there is coming an implosion in the comercial credit marketplace stemming from an ongoing loss of capital reserves by these organizations.
The outcome of the ongoing decapitalization of the commercial lending infrastructure will be two fold: first, a company's stock values will immediately fall as news is made public that its credit lines are cut; and secondly, "liquidation" -- companies lacking liquidity will be shutting down literally overnight, in "Bear Stearns fashion"; declaring bankruptcy; and selling any assets for pennies on the dollar.
II. Widespread Mortgage Backed Bond Failures Loom Large.
A. Shares Of Bond Insurers Fail As Moods Warns On MBIA And AMBAC
Jesse relates that just before the closing bell, the rating organization Moodys warned on MBIA and AMBAC.
Charts show that the shares of all the bond insureres fell
MBI MBIA fell 5%
ABK Ambac fell 8%
RDN Radian Group fell 9%
PMI PMI Group fell 6%.
Marketwatch relates that poor performance of second lien residential mortgage-backed securities, RMBS, could impact the credit ratings of bond insurers, Moody's Investors Service said. Bond insurers have significant exposure to second lien RMBS, mainly through guaranties on the securities and, to a lesser extent, through exposure to collateralized debt obligations backed by such assets, the rating agency noted. "Moody's loss expectations for this asset class are higher than previously anticipated, owing to worse-than-expected performance trends," the agency explained. "This could have material implications for the estimated capital adequacy of financial guarantors most exposed to this risk."
And Fortune Magazine relates that the triple-A ratings at bond insurers MBIA, MBI, and Ambac,ABK, could soon be under scrutiny again. Moody’s said Tuesday that rising losses on bonds backed by second mortgages could hit ratings at insurers that have guaranteed second-lien residential mortgage-backed securities.
The result here is that a new wave down of real estate, banking and financial organizations is going to commence, and that is going to take the whole stock market lower.
And the result is going to be that mutual bond funds, municipal bond funds, and institutional investors, such as pension fund and retirement organizations, are going to have to sell bonds as their charter mandates that only AAA or higher graded bonds be kept on account.
B. Bank of America Raised Loan Losses; And The Specter Of Abandonment Of CFC Debt Arises
The Financial Ninja relates that since Bank of America, BAC, is raising its own loan loss projections, there is no way they intend to guarantee Countrywide, CFC, debt… and it is becoming increasingly likely they could walk away from the CFC deal entirely. That would strand about $38 billion in CFC debt
Shares of Bank of America, BAC, fell 2% manifesting a bearish engulfing candlestick.
Keywords
creditgridlock, creditcrunch, commercialcredit, consumercredit, capitalinfrastructure, commercialending, creditinfrastructure, leninginfrastructure, commercialcreditinfrastructure, creditgridlock
The Financial Ninja relates that the Federal Reserve Statistical Release on Consumer Credit was freakish. The annual rate of increase in revolving credit card debt was nearly 8% in March, more than double the annualized rate of increase in wages.
Shares of commercial credit provider CIT Group, CIT, fell lower; and consumer credit World Acceptance Corp, WRLD, turned lower, manifesting the lollipop hanging man candlestick.
Diviversified credit provider, Capital One Financial,COF, simply fell 4%.
Bank Of Amercica, BAC, Citicorp, C, American Express, AXP, Capital One Financial, COF, and Orix, IX constitute the commercial credit infrastructure that underpins consumer credit and commeical lending.
The "credit crunch" is going to quick morph to become "credit gridlock": there is coming an implosion in the comercial credit marketplace stemming from an ongoing loss of capital reserves by these organizations.
The outcome of the ongoing decapitalization of the commercial lending infrastructure will be two fold: first, a company's stock values will immediately fall as news is made public that its credit lines are cut; and secondly, "liquidation" -- companies lacking liquidity will be shutting down literally overnight, in "Bear Stearns fashion"; declaring bankruptcy; and selling any assets for pennies on the dollar.
II. Widespread Mortgage Backed Bond Failures Loom Large.
A. Shares Of Bond Insurers Fail As Moods Warns On MBIA And AMBAC
Jesse relates that just before the closing bell, the rating organization Moodys warned on MBIA and AMBAC.
Charts show that the shares of all the bond insureres fell
MBI MBIA fell 5%
ABK Ambac fell 8%
RDN Radian Group fell 9%
PMI PMI Group fell 6%.
Marketwatch relates that poor performance of second lien residential mortgage-backed securities, RMBS, could impact the credit ratings of bond insurers, Moody's Investors Service said. Bond insurers have significant exposure to second lien RMBS, mainly through guaranties on the securities and, to a lesser extent, through exposure to collateralized debt obligations backed by such assets, the rating agency noted. "Moody's loss expectations for this asset class are higher than previously anticipated, owing to worse-than-expected performance trends," the agency explained. "This could have material implications for the estimated capital adequacy of financial guarantors most exposed to this risk."
And Fortune Magazine relates that the triple-A ratings at bond insurers MBIA, MBI, and Ambac,ABK, could soon be under scrutiny again. Moody’s said Tuesday that rising losses on bonds backed by second mortgages could hit ratings at insurers that have guaranteed second-lien residential mortgage-backed securities.
The result here is that a new wave down of real estate, banking and financial organizations is going to commence, and that is going to take the whole stock market lower.
And the result is going to be that mutual bond funds, municipal bond funds, and institutional investors, such as pension fund and retirement organizations, are going to have to sell bonds as their charter mandates that only AAA or higher graded bonds be kept on account.
B. Bank of America Raised Loan Losses; And The Specter Of Abandonment Of CFC Debt Arises
The Financial Ninja relates that since Bank of America, BAC, is raising its own loan loss projections, there is no way they intend to guarantee Countrywide, CFC, debt… and it is becoming increasingly likely they could walk away from the CFC deal entirely. That would strand about $38 billion in CFC debt
Shares of Bank of America, BAC, fell 2% manifesting a bearish engulfing candlestick.
Keywords
creditgridlock, creditcrunch, commercialcredit, consumercredit, capitalinfrastructure, commercialending, creditinfrastructure, leninginfrastructure, commercialcreditinfrastructure, creditgridlock
