Eeyore's News and View

Another article about Uncle Sam not being able to borrrow kind of goes with the post yesterday

Uncle Sam's Credit Line Running Out?
By RANDALL W. FORSYTH
The yield curve and credit-default swaps tell the same story: The U.S. can't borrow trillions without paying a price.
WHAT ONCE WAS UNTHINKABLE has come to pass this year: massive bailouts by the Treasury and the Federal Reserve, with the extension of billions of the taxpayers' and the central bank's credit in so many new and untested schemes that you can't tell your acronyms or abbreviations without a scorecard.
Even more unbelievable is that some of the recipients of staggering sums are coming back for a second round. Or that the queue of petitioners grows by the day.
But what happens if the requests begin to strain the credit line of the world's most creditworthy borrower, the U.S. government itself? Unthinkable?
American International Group (ticker: AIG), which originally had to borrow what was a stunning $85 billion from the Fed to keep it from cratering in September, upped the total Sunday to $150 billion.
Monday, Fannie Mae (FNM) reported a $29 billion third-quarter loss, far in excess of forecasts, raising the specter that the mortgage giant may need more money after the Treasury pledged to inject $100 billion in preferred stock financing in September.
Meanwhile, American Express (AXP) received Fed approval to convert to a bank holding company, joining the likes of Morgan Stanley (MS) and Goldman Sachs (GS), that have a direct pipeline to borrow from the Fed or the Treasury's TARP, the $700 billion Troubled Asset Relief Program.
And, of course, Detroit is looking for a credit line from Washington. General Motors (GM) Friday warned it could run out of cash next year without a government loan. GM plunged another 23% Monday, to 3.36, as several analysts helpfully recommended selling shares of the beleaguered auto maker that already had lost more than 85% of their value.
Visiting the White House Monday, President-elect Obama pressed President Bush to support emergency aid for GM and other auto makers. The prospect for federal aid for GM ironically weighed on its shares as one bearish analyst said the price of the bailout could be a wipeout of common holders.
Be that as it may, it's all adding up. If the late Sen. Everett Dirksen were around today, he might comment that a trillion here, a trillion there and pretty soon you're talking about real money.
Trillions are no hyperbole. The Treasury is set to borrow $550 billion in the current quarter alone and $368 billion in the first quarter of 2009. "Near-term pressures on Treasury finances are much more intense than we had thought," Goldman Sachs economists commented when the government announced its borrowing projections last week.
It may finally be catching up with Uncle Sam. That's what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it.
The yield curve simply is the graph of Treasury yields of increasing maturities, starting from one-month bills to 30-year bonds. The slope of the line typically is ascending -- positive in math terms -- because investors would want more to tie up their money for longer periods, all else being equal. Which it never is.
If they expect yields to rise in the future, they'll want a bigger premium to commit to longer maturities. Otherwise, they'd rather stay short and wait for more generous yields later on. Conversely, if they think rates will fall, investors will want to lock in today's yields for a longer period.
The Treasury yield curve -- from two to 10 years, which is how the bond market tracks it -- has rarely been steeper. The spread is up to 250 basis points (2.5 percentage points, a level matched only in the past quarter century in 2002 and 1992, at the trough of economic cycles.
Based on a simplistic reading of that history and the Cliff Notes version of theory, one economist whose main area of expertise is to get quoted by reporters even less knowledgeable than he, asserts such a steep yield curve typically reflects investors' anticipation of economic recovery. Never mind that the yield curve has steepened as the economy has worsened and prospects for recovery have diminished. Like the Bourbons, the French royal family up to the Revolution, he learns nothing and forgets nothing.
As with so much other things, something else is happening this year.
The steepening of the Treasury yield curve has been accompanied by an increase in the cost of insuring against default by the U.S. Treasury. It may come as a shock, but there are credit-default swaps on the U.S. government and they have become more expensive -- in tandem with an increase in the spread between two- and 10-year notes.
This link has been brought to light by Tim Backshall, the chief analyst of Credit Derivatives Research. The attraction of investors to the short end of the Treasury market is "juxtaposed with the massive oversupply and inflationary expectations of the longer end," he writes.
Backshall is not alone in this dire assessment. Scott Minerd, the chief investment officer for fixed income at Guggenheim Partners, a Los Angeles money manager, estimates that total Treasury borrowing for fiscal 2009 will total $1.5 trillion-$2 trillion. That was based on $700 billion for TARP, a $500 billion-$750 billion "cyclical deficit," an additional $500 billion stimulus program and some uncertain amount for the Federal Deposit Insurance Corp.
Minerd doubts that private savings in the U.S. and foreign purchases of Treasury debt will be sufficient to meet those government cash requirements. That leaves the Fed to take up the slack; that is, monetization of the debt.
However it comes about, Backshall's charts of the yield curve and the spread on U.S. Treasury CDS paint a dramatic picture. Both the yield spread and the cost of insuring debt moved up sharply together starting in September.
Let's recall what happened that month: the Fannie Mae-Freddie Mac bailouts, the AIG bailout and the Lehman Brothers failure. The two lines continued their parallel ascent with the announcement and ultimate passage of the TARP last month. And evidence mounted of an accelerating slide in growth.
Cutting through the technical jargon, the yield curve and the credit-default swaps market both indicate the markets are exacting a greater cost to lend to Uncle Sam. And it's not because of anticipated recovery, which would reduce, not increase, the cost of insuring Treasury debt against default.
All of which suggests America's credit line has its limits.
At the beginning of the Clinton administration in the early 1990s, adviser James Carville was stunned at the power the bond market had over the government. If he came back, Carville said he would want to come back as the bond market so he could scare everybody.
President-elect Obama may come to think Clinton had it easy by comparison.
http://online.barrons.com/article/SB122633310980913759.html

Extreme Green: Living Off the Grid
Living "off the grid" is usually the choice of the hardened survivalist, the mountain man and perhaps the odd fugitive running from bounty hunters. But more and more Americans are now opting to disconnect from the grid — i.e., government, electric and other utility services — which delivers increasingly expensive fossil-fuel-based power and is, as millions in the Northeast learned during the 2003 blackout, anything but infallible. In 2006, Home Power magazine estimated that more than 180,000 U.S. homes were supplying their own power. "Some people want to minimize their impact on the environment," says Dave Black, a disaster-response consultant and expert in off-the-grid living. "Some people want to ensure they have service if there's an outage. And some people just want to look green."
But going off the grid isn't as simple as unplugging your television. The grid isn't just electricity but water, heat, waste management — even your cable signal. And then there's the gas that powers your car, the government-funded roads you drive on and the air in which you fly. That's where Black comes in. He has just written a book called Living Off the Grid, a practical guide to weaning yourself off the electrical milk of modern life. To Black, the benefits of going gridless aren't just about the environment — though with electricity responsible for about 40% of U.S. carbon emissions, disconnection has real green value. Black sees it more as a way to promote self-sufficiency on a national level — all the more important as the U.S. grapples with its addiction to foreign energy, a geopolitical grid it needs to disconnect from. "I'd really like to see us reduce our dependency on resources from outside the country," says Black. So how do you go gridless? Black has a few tips:
Conservation: The average American family uses 10,000 or so kilowatt-hours of electricity a year; quitting that grid cold-turkey can seem pretty daunting. That's why Black's first three words of advice are conserve, conserve, conserve. Most of us waste electricity in a hundred ways, both small (leaving our appliances plugged in and drawing a subtle charge) and large (holding on to energy-wasting appliances and lightbulbs). Reduce that waste by purchasing more-efficient appliances and tightening up insulation to avoid heat loss from your home, and you're already decreasing your dependence on the grid. "Those things will significantly reduce your bills and you'll [still] be able to lead a fairly comparable lifestyle," says Black.
Renewable Energy: As solar and wind-turbine technology improve, it will become cheaper and easier for homeowners to provide much of their own electricity. The truly dedicated off-gridder will try to use both solar and wind, as the two energy sources are complementary — when the sun isn't shining, the wind often blows and vice versa. The good news is that Congress passed an extension to the production tax credits for wind and solar power in the recent economic bailout package, which will make installing your own electrical supply cheaper going forward.
Water: Clean water out of the tap is one of the great innovations of the modern age — and something that billions of people in the rest of the world lack. But if you live on the right kind of land, you can dig your own well — as more than 17 million Americans currently do. The process is simple — dig a hole into the ground and get a pump that will pull out the water. Generally the deeper you drill, the better the water — but the cost can range from $3,000 to $15,000 depending on how far down you go. If you want to go cheaper, you can also build a cistern to collect rainwater — but you should avoid this choice if you live near heavy pollution, like a major expressway or factory.
http://www.time.com/time/health/article/0,8599,1857835,00.html

Credit Crisis Tentacles Spread to Every Sector of Finance Market
Finally there is a 100% consensus between economists, experts, journalists, and government officials that restoring interbank lending will restore the stability of the financial system and will reignite economic growth. Too bad, the consensus has gotten again all wrong. This is a pure myth and nothing can be further from the truth.
The grim reality is very different and already forgotten. The reality is that most markets for the majority of financial instruments have collapsed completely and reviving interbank lending will not resurrect any of those markets. In other words, resolving the problem of interbank lending will not help the economy in any way. It is like an air balloon that has deflated and we desperately need to reflate it again with helium, but we are told that even ordinary cold air will lift it off the ground; since the balloon is stubbornly stuck on the ground, we are told we simply need more air!
We offer little new here, but a precious history of how the tentacles of the Credit Crisis are reaching more and more segments of the financial markets. No amount of interbank lending will recover meaningfully most segments from the firm grip of those tentacles.
The Causes of the Financial Crisis We do not attempt to explain the fundamental causes of the current Credit Crisis. No doubt that in coming decades tomes will be written on the subject. Nevertheless, the basics are simple – America borrowed and spent for decades driving its savings rate to nil, while printing trillions of dollars in attempt to sustain the (unsustainable) global imbalances caused by its own profligacy and saddling the rest of the world with trillions of bad debt.
The Trigger of the Financial Crisis The trigger of the crisis can be attributed to the decreased confidence in the markets for mortgage-backed securities following the August 2007 collapse of two Bear Stearns' hedge funds that were heavily exposed to subprime mortgages. Resetting of teaser rates and adjustable-rate mortgages triggered an avalanche of defaults. Once default rates started rising, many institutional investors, both U.S. and global, began to realize that the MBS's and CDO's in their portfolios might not be worth what they initially thought. Investment banks, insurance companies, mutual funds, and hedge funds alike began recognizing losses related to their holdings of mortgage-backed securities. Confidence was shaken. Margin calls forced further liquidations of those mortgage-backed securities, but as few were standing ready to buy, prices dropped even further, invoking even more margin calls. It was a death-spiral. The resulting losses just went snowballing. As a result, the markets for those structured financial products froze up and liquidity suddenly dried up. The Credit Crisis reared its ugly head.
1. Subprime Mortgages
The first indicator signaling the Subprime Meltdown surfaced in February 2007 “when scores of mortgage originators went bust amid rising defaults and tightening lending standards” . In mid-June, a second significant sign of financial collapse became evident as two CDO-focused Bear Stearns hedge funds blew up. Those hedge funds were too big and distracted investors' attention from another smaller in proportions, but still significant bankruptcy - California based brokerage firm Brookstreet Securities. This was the early beginning of the crisis.
In the second week of July 2007, Moody's and Standard & Poor's announced downgrades on billions of bonds backed by subprime mortgages. Though the downgrades did not reveal the unsoundness of the bonds, it signaled the demise of the Ponzi mortgage investment market backed by inflated real estate.
In early August the looming Credit Crunch could already be felt. Several of Wall Street's biggest foreign customers announced enormous losses on their holdings of mortgage backed securities. Once the “teaser rates” began to reset, mortgage defaults spiked. Foreign investors realized that the bond collateral fell short of the bond principal, in banker-speak, the LTV exceeded 100%. Home equity vanished and mortgage payments shot up. Dwindling foreign lending was a sure sign of the impending crisis.
At the end of August many financial institutions began to sense the looming disaster. Calls for various government bailout schemes for homeowners were only meant to bail the lenders out. Amidst the unraveling of the subprime crisis, the Fed responded by aggressively cutting interest rates. However, tightening lending standards, widening credit spreads, and rising down payments exacerbated default rates and mounted further losses for the Leveraged Speculator Community, aka, hedge funds. A common sense of mistrust gripped the markets. Confidence evaporated, and so did liquidity. The subprime market was terminally ill – no amount of Fed cutting and liquidity injections could ever possibly revive it again! This market has been dead for more than year.
2. Jumbo Mortgages
With the meltdown of subprime mortgages, the tentacles of the Credit Crunch began to take firm hold of other sectors of the financial system. The next victim was the market for jumbo mortgages – mortgages of high denominations, technically above $417,000 at the time. Further tightening of lending standards and more realistic perceptions of the underlying risk of those mortgages basically froze the market for Jumbo MBS. The major force behind the inflating California and Florida real estate bubbles was inanimate. Now these markets were set for a spectacular bust; the government's attempt to resurrect the Jumbo market (by raising the limit to $730,000) miserably failed. This market has been comatose for well over a year and jumbo rates remain stubbornly high. No amount of liquidity or interbank lending will revive the Jumbo market any time soon!
3. Home Equity loans
With dying subprime and jumbo markets and tightening mortgage credit, something that for decades was believed impossible, suddenly became inevitable -- real estate prices began to fall. As a result, the tentacles of the credit crisis snatched another victim -- Home Equity Loans and Home Equity Lines of Credit (HELOCs). These loans, commonly referred to as “second mortgages”, allow homeowners to borrow against the value of their home equity to finance a range of expenditures, such as medical bills, home improvements, college tuitions, and well-deserved vacations. The market quickly degenerated with rapidly deteriorating LTV ratios and skyrocketing number of “underwater” mortgages. Consumers fell behind on those loans at the highest level in 15 years. No more refis for consumers who already extracted the last drop of equity. With real estate prices falling, there was equity no more, With equity gone, so were the home equity loans. We can safely say that home equity loans are now a thing of the past and no amount of government stimulus and interbank lending will revive this market for many years!
4. SIVs and Conduits
Structured investment vehicles (SIVs) played a crucial role in the historic expansion of credit. A brainchild of ingenious financial engineers, large investment banks created and sponsored these entities. They invested largely in ABSs and MBSs that were manufactured primarily by the same large investment banks. To finance these investments, they issued investment-grade commercial paper and structured notes to investors around the world. This scheme allowed large financial institutions to remove a major portion of their risk exposure off their balance sheets, while at the same time “consolidating” any profits that resulted from the SIV operations. To put it in simple terms, they kept the profits on the balance sheet, but kept the risk off the balance sheet. This was the ultimate game in finance – return without risk, converting junk into AAA, turning led into gold – this was the Magic of Wall Street, the Alchemy of Finance.
However, with SIVs and Conduits loaded up with subprime, it was only a matter of time before this alchemic dream would turn into an ugly nightmare. Rising defaults and falling real estate prices shook investors' confidence. A series of downgrades inflicted grave damages. Some very risk-averse investors reaped distressing losses. Many risk-averse pension funds and university endowments relied on the AAA ratings and treated the securities as higher-yielding alternatives to safe money-market instruments. Repricing of ABS and MBS resulted in major writedowns for those SIVs and magnified the losses of their leveraged investors. Yet another victim fell into the tentacles of the Credit Crisis. As Doug Noland has pointed out so well, “the collapse of structured investment vehicles has proven to be the ultimate failure of Wall Street Finance in its attempt on risk intermediation between highly risky mortgage-backed securities and perceived safe and liquid money market instruments”. Today, it is accepted that Alchemy doesn't work, and that SIVs were hoped to do just that -- convert led into gold. The reality is that no amount of interbank lending and liquidity injections will do that.
5. CDOs
Some of the most pervasive exposures of leveraged financial institutions have been related to CDOs backed by subprime debt. This was another creature of mad financial engineers that was destined to fall in the tentacles of the Credit Crisis. It was meant to pool dodgy debt that with proper slicing and dicing would magically turn into a AAA-asset; it turned led into gold.
The bulk of the colossal losses of large investment banks, brokerage firms, hedge funds, and other financial institutions have been related to write-downs of CDOs. Their demand stalled as some top-rated classes of mortgage-linked CDOs lost their entire value amid surging foreclosures. Series of CDO downgrades by credit rating agencies led to enormous losses for investors around the world. Top-rated CDO tranches were devalued in late October 2007 due to expectations of excessive future losses from jumbo mortgages, Alt-As and option ARMs. Following the collapse of the two Bear Stearns hedge funds that were heavily invested in subprime CDOs, the CDO market has suffered severe illiquidity and lack of confidence. In late January Merrill Lynch CEO John Thain asserted that “[The company is] not going to be in the CDO and structured-credit types of businesses”. Since then the market has been for all practical purposes dead. It is dead because the underlying assets (jumbo, Alt-A, option ARMs) were never creditworthy in first place. No amount of liquidity injections and interbank lending will make the underlying instruments more creditworthy than before, and therefore cannot resurrect this financial instrument.
6. Commercial Paper
The familiar notion of borrowing short and lending long has come into question since the Credit Crisis began. Thousands of financial institutions have previously met their demise as a result of a maturity gap. Most of the companies engaged in this business were issuing commercial paper backed by MBSs or CDOs. With the unfolding of the crisis, questions about the value of the underlying collateral became ever more pervasive and eroded confidence. As a result, the market for commercial paper (CP) has fallen into the tentacles of the Credit Crisis. The first to experience the difficulties were the investment banks, then the commercial banks, and later other financial institutions. The difficulties spread even to the best investment-grade industrial corporations. As of April 11, 2008 total outstanding commercial paper has contracted by 11.4%. This market is not dead, but on life support, as the Fed has directly intervened to monetize commercial paper. Indeed, this market desperately needs the life support by the Fed in order to stay alive. By monetizing CP, the Fed has become the Lender of Last Resort for major corporations.
7. Private-Label MBS
The market for private-label MBS, which has been central to the creation of easily-available cheap credit, has suffered from a severe liquidity seizure, falling into the tentacles of the Financial Crisis. By securitizing mortgage loans, Wall Street was able to provide endless amounts of credit to homebuyers and homeowners, which led to the inflation of a real estate bubble of extreme proportions. Escalating home prices, in turn, made it possible for mortgage lenders to extend even more credit to borrowers with questionable credit history, without having to worry about being repaid, On the way up, it was a well-oiled Ponzi scheme; on the way down – an unmitigated disaster. The scheme depended crucially on rising real estate prices; once the prices stagnated or began to fall, no amount of liquidity injections or interbank lending could potentially revive this market.
8. Leveraged Loans
The loan market for Private Equity and Leveraged Buyouts (LBOs) is not functioning. Those loans that finance Private Equity deals or LBOs are known as “leveraged loans”. The tentacle of the credit crisis has gripped this market too. As the real economy has suffered a serious slowdown and plunges into a recession, the rate of corporate bankruptcies has been soaring. As a result, in October 2007 some of the major banks, such as Bank of America, Citigroup and JP Morgan, had to write down $2.5 Billion in loans for LBOs. These losses prompted most of the big players to slash their LBO loans. Some estimates indicate that only the very best deal can possibly get any financing; the volume has fallen almost 10 times. With an economy in recession, no amount of liquidity injections and interbank lending can revive this market.
9. Alt-A Mortgages
The Alt-A mortgage sector has not escaped the tentacles of the credit crisis. In a manner quite similar to Subprime and Jumbo mortgages, this market has slowed to a trickle. However, with the nationalization of the GSEs, the government is attempting to revive this market by forcing the GSEs to purchase more of these mortgages. As the GSEs themselves are now “owned” and guaranteed by the Treasury, this is tantamount to the Treasury buying up Alt-A mortgages. Given that the Treasury itself is financed mostly through monetization of the Fed, the ultimate effect is that this market is supported, just like the commercial paper market, with the printing press. The economic interpretation is that of a classic government subsidy financed by an inflation tax – redistributive, inefficient, and replete with moral hazards that sets up the system for a spectacular blowup down the road.
10. Prime Mortgages
The next victim in the tentacles of the Credit Crisis became the prime mortgages. Already in deep trouble, the financial system damaged even its healthiest credit market instrument. Reacting to the defaults in subprime and Alt-A mortgages, investors were compelled to manage risk more carefully. Practically, all sorts of loans became inaccessible for any borrower. This dried the liquidity, further causing huge bankruptcies of the borrowers who cannot refinance their loans. The prime residential mortgage market has been revived with the spectacular “bankruptcy” and subsequent nationalization of the GSEs, backed directly by the Treasury and indirectly by the Fed.
11. Commercial Mortgages
The commercial mortgage market has been practically frozen for many months. As the debacle in subprime, jumbo, Alt-A, and prime mortgages has unfolded, investors turned their attention to commercial mortgages. Over time, it became clear that investing in commercial mortgages is fraught with risk. The first obvious risk was overvaluation. The second obvious risk was a decelerating economy. The evolution of the Credit Crisis introduced a well-forgotten type of risk – liquidity risk. Investors saddled with heavy losses from other mortgage instruments decided to withdraw and stay on the sidelines. This, coupled with shaken confidence was enough to choke this market. Risk premiums have skyrocketed as the perceived risks of commercial mortgages have realigned with reality. Recession has exposed the fundamental weaknesses of many projects. The private sector wants none of this market. The Credit Crisis has extended its tentacles to commercial mortgages. No amount of liquidity injections and interbank lending can revive this market; only a direct intervention by the Treasury can do the trick.
12. Auction-Rate Securities
An auction-rate security is technically a debt instrument, typically a municipal bond, with a long nominal maturity, for which the interest rate is regularly reset through an auction, usually on a weekly basis. One economic interpretation of this concept is that of a fund borrowing with low short-term interest rates and lending to long-term municipal bonds, passing on the low interest rate to the municipal borrower. The other economic interpretation is that illiquid municipal bonds are securitized and transformed into liquid securities that are regularly traded at auctions. As deleveraging tightened its vice grip on the credit market in February 2008, liquidity evaporated from the credit system and the auction-rate securities suddenly crashed out of the blue. It was another nail in the coffin of Wall Street Structured Finance and another victim in the tentacles of the Credit Crisis. This market has been dead for half a year and nothing short of extraordinary amount of liquidity coupled with government guarantees has the potential of reviving it.
13. Corporate Debt
The Credit Crisis has extended its tentacles to the corporate bond market. Credit spreads of investment-grade corporate bonds have been steadily rising and are much higher than even two months ago. Credit spreads for junk bonds have surged from 650 basis points at the end of September 2008 to 950 basis points at the beginning of November. Yes, credit is available to corporations, but the cost is becoming prohibitive. The tentacles have reached the corporate market and are beginning to strangulate it. Just like the market for auction-rate securities, this market desperately needs a torrent of liquidity to overcome the strangling tentacles. A Bloomberg story from October 31 tells the sorry tale of this market: “Corporate debt markets in the U.S. and Europe endured their worst month as the credit crisis spread beyond financial firms to industrial companies amid the prospect of a global recession. Corporate industrial bonds in October are set to post their steepest monthly loss on record, while the gaps between yields on those bonds and government debt soar by the most ever.”
14. Credit Default Swaps
The US monolines are on the verge of bankruptcy as more and more of the credit that they insure defaults. They initially encountered difficulties in the beginning of January 2008. Indices of corporate credit risk widened, showing that the tentacles of Credit Crisis have reached the corporate bond market. The price of credit protection soared.
The monolines staggered because some major insurers were downgraded as investors questioned their ability to perform. Investors' minds were suddenly preoccupied with another well-forgotten risk – counterparty risk. A vicious spiral gripped the monolines -- CDSs lost their attractiveness, resulting in less cash inflows for monolines, which in turn decreased their ability to provide adequate credit risk insurance, lowering in turn their ability to sell CDSs… And another victim fell prey into the tentacles of the Credit Crisis.
The CDS market has not collapsed completely. However, its imminent collapse will indirectly affect international finance. Inability to hedge with CDS will eventually destabilize the US financial system. Many corporate borrowers will be unable to borrow, which in turn will result in higher corporate defaults, and another vicious cycles will inevitably take hold of the financial system.
15. Letters of Credit
The tentacles of the Credit Crisis have recently taken another victim: Letters of Credit. A Bloomberg story from October 29 explains this ugly turn for the worse: the Credit Crisis spreads beyond the financial sector and into the real economy. Do you remember the good old days when Bernanke and Paulson assured us that the Credit Crisis is contained? Here is the Bloomberg story:
“Richard Burnett's lumber company had started loading wood onto ships heading for China. More was en route to the docks. It was all part of an order that would fill 100 40-foot cargo containers. Then Burnett got a call from his buyer at Shanghai VIVA Wood Products Co. The deal was dead. He told Burnett… he couldn't get a letter of credit to guarantee payment for at least six months. ‘It was like a spigot got cut off,' Burnett said… The inability of buyers in China and Vietnam to get letters of credit has cost his company as much as $4 million this year, a third of projected revenue, forcing him to lay off 15 of 35 employees, he said. Suppliers of oil, coal, grains and consumer products from Chicago to Mumbai are losing sales as the credit crisis spreads beyond financial institutions, and banks refuse financing or increase the fees for buyers.”
16. Credit Card Loans
In October 2008 another market has fallen into the tentacles of the Credit Crisis: the market for credit card loans. Credit card companies usually do not retain most of their credit card debt on their balance sheet; instead, they securitize it and sell it. The latest data from Dealogic indicates that the consumer-based securitization market has shrunk in October to $500 million from $50 billion previously. This means that the ability to securitize and sell consumer-based loans has fallen almost 100 times in one year. The implication is clear – credit card companies will be forced to cut consumers from credit card debt. This will bring the American consumer to his knees and means the end of the Consumer Economy. No wonder that in the last three months the media frequency of the word “Depression” has increased hundred-fold.
Going Forward
No amount of interbank lending and liquidity injections will revive most of the markets for various financial instruments. No amount of monetary and fiscal policy can resurrect genuine productive lending in the economy. The tentacles of the Credit Crisis have spread to every sector of the financial markets. The “Real Estate Economy” is dead; the “Financial Economy” is dead; the “Consumer Economy” is dying; and the “Service Economy” is dying. Enter the Depression Economy! Or shall we say, “Enter the Zimbabwe Economy”!?
The authors are eternally grateful to Doug Noland – in our opinion, the world's foremost Scholar of the evolving Credit Crisis.
Resources: http://www.marketoracle.co.uk/Article1401.html
http://www.marketoracle.co.uk/Article7234.html

London fundraisers linked to stoning of 13-year-oldGirl who tells Shariah court of rape is convicted, executed for 'adultery'
Posted: November 11, 20089:14 pm Eastern
LONDON – Britain's MI6 intelligence service has identified a group that raises funds with impunity in London as the organization whose militia members in Somalia imposed a death sentence on a 13-year-old rape victim, according to a report from Joseph Farah's G2 Bulletin.
Known as the Shabaab, the ruthless militia is designated as a terrorist organization by the U.S. State Department. The group's leadership was targeted by missile strikes earlier this year.
However, MI6 has revealed that the group operates without restriction in London, funding the fierce guerrilla war against Somalia's long-time enemy, Ethiopia, which invaded Somalia last year.
Until last week, the war attracted little attention in the West. All that changed after a Shariah court in the Somalia southern town of Kismayo handed down a brutal punishment.
A 13-year-old girl, described in an intelligence report as "little more than a pretty child," was sentenced to be stoned to death by the all-male court.
It imposed the sentence on Aisha Ibrahim Duhulow after she had complained to the local Shariah court that she had been gang-raped by, among others, her cousins.
But the court found her guilty of adultery and sentenced her to death by stoning.
She was taken from the courthouse to a local sports stadium. There she was buried up to her neck in sand and then stoned in front of a 1,000-strong crowd, the number the local soccer team attracts.
http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=80733

It is not getting any better, quickly. Time must be given so it can run it's course.

October foreclosures up 25% from a year ago, study says
NEW YORK (Reuters) — Foreclosure activity in October rose 25% from a year earlier, although filings in California fell by double-digit percentage points for the second consecutive month due to a state law slowing the foreclosure process, according to a monthly report by RealtyTrac.
Foreclosure filings — default notices, auction sales notices and bank repossessions — rose by 5% from September to 279,561 in October, according to Irvine, California-based research firm RealtyTrac.
That means one in every 452 U.S. housing units received a foreclosure filing in October, the firm said in its report released Thursday.
The California law, which requires lenders to contact homeowners and explore options to avoid foreclosure before initiating the process, took effect in early September and drove the state's foreclosure activity rates down, at a pace of 31.6% from August to September and 18% from September to October.
But in September, the California law helped drive the national foreclosure rate down, something that did not happen in October.
"Foreclosure activity in other places rose significantly enough to offset the drop in California," said RealtyTrac Senior Vice President Rick Sharga.
Years of lending to risky, or "subprime" borrowers that fueled the housing boom has created an unprecedented number of foreclosures due to the inability of many of those borrowers to pay their mortgages, particularly as interest rates reset and as plunging home values nationwide increasingly render properties worth less than the mortgage.
The numbers might also be showing the effects of the economic downturn, Sharga said. If they do not yet, they will soon.
"An economic downturn is traditionally a precursor to foreclosures, even in a normal foreclosure cycle," Sharga said. "This is not a normal foreclosure cycle by any means."
Moreover, California's law will likely not prevent most of the state's homes which are teetering on the brink of foreclosure from falling off the cliff, Sharga said.
Previous experience with similar laws in Maryland and Massachusetts attests to such laws' inability to make a material difference.
"For most homeowners, these laws just delay the inevitable," he said.
The markets that once lead the housing boom topped the foreclosure list in September.
Nevada posted the nation's highest foreclosure rate for the 22nd consecutive month in October, with one in every 74 housing units, or 14,483, receiving a foreclosure filing during the month — more than six times the national average.
Arizona registered the second-highest state foreclosure rate. Filings were reported on 17,507 Arizona properties, an increase of 35% from the previous month and 176% from October 2007.
In Florida, one of every 157 units received a filing during October, the nation's third-highest state rate. A total of 54,324 Florida properties received a foreclosure filing during the month, an increase of 13% from the previous month and nearly 80% from last year.
However, the government unveiled a plan Tuesday which, unlike California's law, could permanently reduce the number of foreclosures, Sharga said.
Homeowners facing foreclosure who are spending more than 38% of their income on mortgage payments could have monthly payments reduced by Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies.
"The good news is that there are programs and facilities in place that could actually have a material effect of stemming the tide of foreclosures, but as always the devil is in the details," Sharga said, adding that he does not expect to see that effect until late in the first quarter of 2009.
RealtyTrac counts foreclosures by compiling the total number of properties with at least one foreclosure filing reported during the month. If more than one foreclosure document is filed against a property, RealtyTrac counts only the most recent filing. (Reporting by Helen Chernikoff and Patrick Rucker, editing by Matthew Lewis)
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