Website review: RGE Monitor
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•rgemonitor.com/blog/roubini/242290
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laodan discovered 3 months ago- Twelve stages of present systemic financial meltdown in RGE by Nouriel Roubini
To understand the Fed actions one has to realize that there is now a rising probability of a "catastrophic" financial and economic outcome. The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster in Summary: 1. A 30% fall in home values ==> 10 million households will have negative equity in their homes ==> use "jingle mail". Total loss in households wealth: between $4 trillion and $6 trillion 2. Goldman Sachs now estimates total mortgage credit losses of about $400 billion; but the eventual figures could be much larger if home prices fall more than 20%. Because the securitized toxic waste has been spread from banks to capital markets and their investors in the US and abroad and making the credit crunch global. 3. The recession will lead - as it is already doing - to a sharp increase in defaults on other forms of unsecured consumer debt: credit cards, auto loans, student loans... leading to a more severe credit crunch. 4. The downgrade of the monolines (bond insurers) will lead to another $150 billion of writedowns for financial institutions that have already massive losses. This will lead to another sharp drop in US equity markets that are already shaken by the risk of a severe recession and large losses in the financial system. 5. The commercial real estate loan market will soon enter into a meltdown similar to the subprime one as no one will want to build offices, stores, shopping malls/centers in ghost towns. 6. Some large regional and national banks very exposed to mortgages, residential and commercial, will go bankrupt lead to depositors panic. These bank bankruptcies will lead to severe fiscal losses from bank bailout resulting in effective nationalizations. 7. Banks losses on their portfolio of leveraged loans are already large and growing. The ability of financial institutions to syndicate and securitize their leveraged loans is now at serious risk leading to a freezing up of the credit market. 8. Once a severe recession is underway a massive wave of corporate defaults will take place. If losses are large some of the counterparties who sold protection - monolines, hedge funds and large brokers - may go bankrupt leading to even greater systemic risk as those who bought protection may face counterparties who cannot pay. 9. The "shadow financial system" (as it is composed by non-bank financial institutions) will soon get into serious trouble. Dealing with the distress of this shadow financial system will be very problematic as this system - stressed by credit and liquidity problems - cannot be directly rescued by the central banks in the way that banks can. 10. Stock markets in the US and abroad will start pricing a severe US recession - rather than a mild recession - and a sharp global economic slowdown. US and global equity markets will enter into a persistent bear market. In a typical US recession the S&P500 falls by about 28%... 11. The worsening credit crunch that is affecting most credit markets and credit derivative markets will lead to a dry-up of liquidity in a variety of financial markets. 12. A vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems; thus, one should be prepared for the worst, i.e. a systemic financial crisis. Cash is emerging as the king maker. Good luck to all.
- Twelve stages of present systemic financial meltdown in RGE by Nouriel Roubini
