Tag: defaults

Grab those life rafts – ‘financial tsunami’ on the way?

Via Bloomberg:

Rising consumer prices will leave more U.S. consumers unable to pay their debts and may lead to a “financial tsunami,” according to Bennet Sedacca, president of money manager Atlantic Advisors LLC in Winter Park, Florida…

Sedacca wrote that current financial-market conditions remind him of “someone standing on a lonely beach, armed with only a small bucket, trying to stop a rare tsunami that hits the shores. It is how I feel about our markets and the tools being utilized by the Federal Reserve, the European Central Bank and other regulatory bodies. They are overmatched for what they are facing and, worse yet, they helped create the mess in the first place by being far too easy with money and debt creation.”

I’m tossing in the chart that Bloomberg’s site left out:

mortgage-problems

I suspect the Central Bank is going to meet a pervasive lack of cooperation with regard to quelling international demand – the situation reminds me of how “uncoordinated” world partners (i.e the U.S., Germany and Japan) became before the 1987 market correction. It seems raising rates may only serve to exacerbate the in-house financial crises – meanwhile, if Sedacca’s thesis is correct, demand for (at least) domestic goods and services is likely to falter regardless of Fed action.

The $400 Billion Black Hole

Liz Moyer writes:

Friday, a group of bank and academic economists calculated the mortgage credit toll on the financial system to be $400 billion. About half of that will be borne by U.S. financial institutions. Most of the losses are coming at leveraged financial firms, like banks, which will in turn pull back lending, applying another brake on economic growth.

Upping the ante, UBS analysts put the hit to the financial system at closer to $600 billion, as investments in troubled assets made on borrowed money are forced to wind down. So far, only $160 billion of losses have been logged by brokerages and banks since the carnage began last fall.

The next shoe to drop? Or just the same old stinky shoe getting tossed around?