We Are Clearly in the Beginning of a Classic Credit Crunch

http://www.godlikeproductions.com/bbs/message.php?messageid=421789&mpage=1&showdate=8/8/07&forum=1


This thread, "We Are Clearly in the Beginning of a Classic Credit Crunch" is posted today (August 8th) on Godlike Productions by Maui Boor, a well-known financial consultant.


One may well ask, "why am I posting negative stuff like this?" The reason is simple: I care.


Being a lightworker... and denying all negativity by pretending that it does not exist and wishing it all away with love and light... is *not reality*... and it may cost you, and your loved ones... your shirt, your home, and your existence.


This is a universe of *polarity* ~ positive&negative, yang&yin, light&dark. Pretending it is not so... or denying it is so... does not make it magically go away.


One thing that lightworkers fail to realize is that every single time they join one or two... or en masse like the July 17th FireTheGrid event... when they magnify the Light... *they also greatly magnify the darkness*... just because our universe is both poles in 3D. You cannot magnify the one without the other... and nothing is ever done by these emotionally-blind New Agers to in any way contain the darkness. It is spiritual ego run amock... and we are seeing it every single day now... since 17 July 2007. It has magnified the evil one-hundredfold. Just look around.


Pandora's Box has been opened. Yes, there was a spike in mass consciousness as measured by the Princeton egg... but was it for good? It certainly looks like it was not.


So, why warn? Why bother? Because so long as we live in physical bodies we have to deal with reality. We cannot wish nor dream it away. It is what it is.


Our "job" is to go through it... not ignore it or deny it... to *survive* and rise above it... not only for ourselves, but for all those we love and care for.


Am I a doomsayer? Some may say so. I do not care. What am I? A *truth-sayer*. Be awake, discern. Perhaps this may save not only your own personal "butt" but that of those you claim (as lightworkers) to care for.


Look to God... and not to the "little god" (self) that New Agers have replaced God with (Lucis/Luciferian Trust). Then reach out and do your own work... reach out to God and help yourself... and he will help you. TAANSTAFL... "there ain't no such thing as a free lunch".


Wake up time *now*... like it or not. :shock:

I will give you a classic example happening right now of *lightworker delusion*. If you open the door... the astral entities will come in.


This very moment, Buddha at BuddhasGarden.net is talking with Amiawake and Loey in his very public to the entire internet shout box.


Buddha is telling Amiawake that he meditated this afternoon and he got a message from "the archangel Meditron" or however he misspelled it. He is dazzlingly excited that "Meditron" has picked *him*. Buddha asks Amia if she knows about "Meditron". Amiawake the spiritual expert sez "she hopes it is not deceptacon [sic]..."


Well it is... deception. This archangel, correctly spelled Metatron... is not only an astral plane dark entity posing as a Light archangel (remember wearing the Light and lovely angelic face of Lucifer)... it is also prolly black psy-ops cuz it comes from the same place Ashtar of the Galactic Federation... Sandanda... El Morya... ad nauseum come from... the astral of Time, Matter, excessive personal praise and uplifting of massive spiritual ego... and deception. Any entity from the astral plane is a *parasite*... and cannot live on its own... so it is an "energy vampire" or "psychic vampire" which lives off of human life blood... literally. These astral entities specialize in picking and praising ones who are self-assured that they know... and they do not.


Don't believe me? It doesn't matter. Check out Engtovo Bhodsvatan at http://www.spiritnexus.com and http://www.engtovo.wordpress.com.


I am sick to death of warning about it all to people who will not listen. So is Engtovo.


Let the "good times roll"... rest assuredly, "it" has begun. :shock:


DISERN. :shock: 8)


******************

[August 08, 2007, 03:28:23 PM]
[Disable refresh]
[Wed 15:24] <amiawake> besides you know permission must be asked....or r u dense?
[Wed 15:23] <amiawake> you did not need to include me, spirit lead me to cleansing ....
[Wed 15:22] <Buddha> t'was purified yesterday. I included you and many others.
[Wed 15:21] <Buddha> purity is the key to accessing higher realms - I remember this
[Wed 15:20] <amiawake> that will happen more and more, when thoughts are serious, intensive, but filled with hope
[Wed 15:19] <Buddha> I am happy for this
[Wed 15:19] <Buddha> I know.
[Wed 15:18] <amiawake> many more are coming buddha
[Wed 15:18] <Buddha> I wake up and reflect... Mediton... I had a serious Huh? moment
[Wed 15:17] <Buddha> yeah I think.
[Wed 15:17] <Buddha> I am filled with joy that much darkness and fog is being shined upon
[Wed 15:17] <Buddha> even former members who said they would never return.
[Wed 15:16] <Buddha> I have noticed that many people are coming over the past day. Many guests, many old old members
[Wed 15:16] <amiawake> you think?
[Wed 15:16] <Buddha>
[Wed 15:15] <Buddha> the lesson for me here is to not doubt
[Wed 15:15] <Buddha> and then I feel bad about doubt
[Wed 15:15] <Buddha> Sometime I shake my head at this stuff but then it turns out to be real.
[Wed 15:15] <amiawake> there are many angels ,we do not know all there names. if he is a transformer I hope is he not a deceptacon
[Wed 15:13] <amiawake> you are too funny
[Wed 15:13] <amiawake> no
[Wed 15:12] <Buddha> I'm gonna ask him where to seek a new weapon
[Wed 15:12] <Buddha> Do you really think he could be a transformer?
[Wed 15:11] <Buddha> my message from Meditron was not only for me but for all those who are worthy
[Wed 15:08] <Buddha> Call upon Meditron to help you seek the cause of negative thoughts, notice how they reflect in your life, and clear them out.
[Wed 15:08] <amiawake> way kewl buddha!
[Wed 15:07] <amiawake> my friend ray ray was looking at loey's photo, he is advising me he can make her "healthy" so I forwarded an email he sent me to her, as a show of good faith...
[Wed 15:07] <Buddha> http://www.buddhasgarden.net/index.php?topic=1697.0
[Wed 15:07] <Buddha> check this out
[Wed 15:07] <Buddha> He felt right.
[Wed 15:06] <amiawake> sounds like a transformer, buddha...how does he "feel" to you
[Wed 15:06] <Buddha> I thought it was a transfromer....
[Wed 15:05] <Buddha> at what?
[Wed 15:05] <amiawake> sorry, was laughing my hinney off
[Wed 15:04] <Buddha> was told I can know whatever I need to know by asking him.
[Wed 15:04] <Buddha> I have never heard of such an angel.
[Wed 15:04] <Buddha> I was meditating and was visited by Archangel Meditron
[Wed 15:00] <Buddha> meditron? do you know this of angel Ami?
[Wed 14:57] <Buddha> hola muchachas!!!
[Wed 14:23] <amiawake> be blessed loey
[Wed 14:23] <amiawake> there really is nothing to fear, this is calming in itself...
[Wed 14:23] <Loey> have a great evening...
[Wed 14:22] <Loey> look for the good and you find even more than you imagined
[Wed 14:22] <amiawake> go rest.. you deserve it!
[Wed 14:22] <Loey> I agree!
[Wed 14:22] <Loey> Ami, you add such a calm element to the board!
[Wed 14:22] <amiawake> things are brighter right now....people need to awaken to see that
[Wed 14:22] <Loey> and HOT!
[Wed 14:21] <Loey> I need a nap before I get to work.... Selling tickets for Taste of Peoria... should be fun!
[Wed 14:19] <Loey> Yes..... I agree...
[Wed 14:18] <amiawake> this is why we should send positive light and love out, it helps to negate the fear
[Wed 14:17] <Loey> yes, I feel the need for calm...... but I am driving up to Chicago again tomorrow to take my son
[Wed 14:16] <amiawake> no, we have tons of farms here!
[Wed 14:16] <Loey> Ami, that is how I feel...... it is not set in stone, every thing changes.... and things we see in the future are possibilities... not definates
[Wed 14:16] <amiawake> perhaps the feeling of urgency is more akin of the spirit needing to be recognized
[Wed 14:15] <Loey> but she is selling her horse farm!!! Know anyone who wants to move to Peoria and buy a horse farm
[Wed 14:15] <amiawake> do not fear it, it shall eat into you, nothing is set in stone
[Wed 14:15] <Loey> it makes me second guess myself
[Wed 14:15] <Loey> I just don't feel the need to move....
[Wed 14:14] <amiawake> way kewl
[Wed 14:14] <Loey> this doomsday stuff weighs heavy on me
[Wed 14:14] <Loey> grrrrrrrr
[Wed 14:14] <Loey> I just had an e-mail from my old psychologist..... she is moving south because she also thinks the time is NOW.

[End Quote, Buddhas Garden shout box 08/08/07.]


Buddha will accuse me of falsely altering this chat... but he was warned at Prophecies.us forum that his website shout box is *public* and that those who think it is private will find that it is not. Here is the link to it, which anyone can read:


http://www.buddhasgarden.net/Sources/sboxDB.php?ts=1186612774

To save those interested a little time, here is what Maui Boor had to say on his "Credit Crunch Coming" thread on GLP:

*******************

The Coming CREDIT CRUNCH by Maui Boor


on Godlike Productions


8 August 2007



The German bank IKB has been the recipient of an $11 billion bailout. $64 billion of leveraged buyout financings have been withdrawn in the last month. Standard and Poors have talked of down-rating Bear Stearns, two of whose funds have collapsed. We are clearly in the beginning phase of a classic credit crunch, and it’s therefore worth looking at how these have played out in the past, and where and how holes in the fabric of the world’s financial system are most likely to appear.


Credit crunches are relatively rare, rarer than stock market downturns. There was no credit crunch in 2000-02, though the stock market downturn was substantial. In 1989-92 there was a mild credit crunch in junk bonds and New England real estate, but relatively little spillover to other areas of the credit market. In 1982, there was a credit crunch in emerging market debt, which was eventually solved by a mass debt forgiveness and bailout of the New York banks which were most heavily exposed. Even during that period, there was no great credit crunch in the domestic U.S. market.


The last true credit crunch was thus that of 1973-74, which was particularly severe in Britain but spread throughout the international debt markets. That’s before the working lifetime of most market participants today. Sam Molinaro, chief financial officer of Bear Stearns said Friday that conditions in the fixed income market were “as bad as I have seen in 22 years” – since he is 49 he was presumably referring to his period of participation in the market rather than some hitherto obscure crisis in 1985, from memory a placid and bullish year. One can pause for a moment to mourn the length of institutional memory of 1950s London, where Morgan Grenfell’s chairman Lord Bicester served until his death in office at 89, thus being able to give his junior colleagues a first hand account not only of the 1929 crash but of its predecessors in 1890 and 1907.


It’s worth looking at how the credit crunch of 1973-4 developed.


Like the last few years, the early 1970s was a period in both Britain and the United States of rapidly rising money supply and asset prices, but with stocks still mostly below the level of a record-setting bull market a few years earlier. In the U.S., Federal Reserve Chairman Arthur Burns inflated the money supply by over 10% per annum during the years 1971-73, in order to lift the United States from recession and allegedly assist President Richard Nixon’s 1972 re-election.


In Britain, the Bank of England in 1971 ended quantitative credit controls and moved to a free market system, while prime minister Edward Heath abandoned control of both the money supply and public expenditure and embarked on a “dash for growth.” This quickly produced a real estate bubble, both in housing but particularly in office property, the supply of which was still somewhat restricted by the aftermath of World War II and the lengthy period of building restrictions that followed. Since the period was one of worldwide economic boom, commodity prices also soared, in many cases reaching levels they were not to touch again until after 2000; the first oil crisis, in which oil prices rose from $2 to $10 a barrel, occurred in October 1973.


The main difference between 1973 and now was inflation, which ran in the US at 6.2% and in Britain at 9.2% in that year. That reflected the worldwide increase in commodity prices, which was not offset by worldwide deflation through outsourcing. Interest rates in nominal terms were correspondingly higher than today and Britain in particular was running a tighter monetary policy, with Minimum Lending Rate rising from 11.5% to 13% as the crisis began in October 1973. However longer term rates were around zero in real terms, as today.


The credit crunch appeared through the London secondary banks, fairly similar institutions to today’s sub-prime mortgage lenders, albeit with their portfolios concentrated on commercial rather than residential loans. Rumblings appeared from this sector in the spring of 1973, and international bond market conditions became very difficult after June, but it was not until November 30 that the first secondary bank, London and County Securities, went into insolvency. However the cascade of bankruptcies that followed was rapid and very severe. By December 19 the Bank of England was organizing a “lifeboat” support package to preserve liquidity in the market and allow orderly liquidation of the fringe banks’ portfolios. At its peak the “lifeboat” had loans outstanding to no fewer than 30 banks, and there was fear at one stage that the gigantic National Westminster Bank would go under.


The British economy had two dreadful years in 1974 and 1975, with a miners’ strike, a 3-day workweek and a hard-left Labour government. The Financial Times share index dropped from its 1969 and 1972 peaks of over 500, and around 400 in late 1973 to a low of 150, a drop of 70% in nominal terms and a lower level in real terms than its nadir of 40.4 after the 1940 evacuation of Dunkirk. The credit crunch persisted until the end of 1975, lasting for around 2½ years in all, and bankrupted most of the entrepreneurial financial institutions in the City of London, including notably Jessel Securities, a major fund manager, and Slater Walker, which until 1973 had been the pre-eminent financial innovator of its day.


Internationally, the British secondary banking crisis had initially only a moderate effect. The Eurobond market closed almost completely in December 1973, one of its last issues being the only Euro-financing ever done in Lebanese pounds – by the time the market reopened for such exotica in 1977 or so, Lebanon was engulfed in civil war. The syndicated loan market however remained open during the first quarter of 1974, since loans by this stage were made on a floating interest rate basis based on the London Interbank Offered Rate (LIBOR) -- thus higher inflation did not automatically destroy their value. There was indeed a large amount of both supply and demand in the banking system, since the oil exporting countries of the Middle East for the first time built up multi-billion dollar balances, mostly held in US and British banks, while countries such as Japan found themselves with a huge oil-related hole in the balance of payments and a consequent need to borrow heavily.


The next leg of the 1973-74 credit crunch came with the bankruptcy of the medium sized German bank I.D. Herstatt, which took place on June 26, 1974. This would normally have caused only a modest ripple internationally, but the foolish German authorities closed the bank in mid-afternoon, while New York was still trading. A number of banks, including my own employers the merchant bank Hill Samuel, had entered into spot foreign exchange transactions, and had paid deutschemarks into Herstatt, expecting to receive dollars from Chase Manhattan, Herstatt’s New York correspondent. The dollars were never paid. This proved to be utterly destructive of international banking confidence; a period of illiquidity followed which was similar only to that after the Creditanstalt failure of 1931. Japanese trust banks, a highly solid and well behaved bunch, were forced to borrow at 2% above LIBOR for around a year, making their funding cost 2% higher than the best U.S. and European banks. The U.S. banking system also got into difficulties, with the Franklin National Bank, a major institution which had invented the bank credit card in 1952, being declared insolvent on October 8, 1974.


The U.S. and British economies went into recession in late 1973, dragged down by the combined effect of the credit crunch and the oil price spike, but the recession was fairly short-lived, ending in late 1974. Politicians were throughout unaware of the true position, as evidenced by the Gerald Ford administration’s switch from distributing “Whip Inflation Now” buttons to proposing a recession-fighting public spending package within the space of six weeks in late 1974, after the economy had already been in recession for a year. Indeed, the final major effects of the credit crunch, the bankruptcy of Slater Walker and the near-bankruptcy of New York City, did not occur until the autumn of 1975, while Cleveland’s default did not occur until 1978.


There are a number of lessons we can learn from this history about the credit crunch we appear to be entering:


• Credit crunches very often occur after periods of excessive monetary expansion which appear to produce halcyon economic conditions of rapid worldwide growth, albeit with rising commodity prices. Check!


• “Foreshocks” occur for some considerable period before the credit crunch, generally concentrated in areas where lending has been most vigorous. In the Latin American credit crunch of 1981-2, the market more or less closed for new lending at the end of 1981, but default did not occur until August 1982. Check – the sub-prime mortgage market went into severe difficulties in February.


• Once a credit crunch hits, it inevitably spreads to other areas where lending has been aggressive, although it may take some months to do so. The international bond markets closed around the same time as the 1973 secondary banking crisis, but the loan markets did not close until several months later. The current crunch appears now to have spread to the LBO market; the emerging market debt market surely cannot be far behind.


• The principal effect of a credit crunch is to dry up lending in general. Bank balance sheets and bond investors’ portfolios become constipated, with no room for new deals and an urgent need for repayment of outstanding loans and cancellation of commitments. In 1974, it became very difficult to get a “backstop” credit line for commercial paper issues, so even though the commercial paper market remained open (there being no real equivalent of the Penn Central collapse of 4 years earlier) issuance became impossible for all but the most liquid companies.


Sub-prime mortgages didn’t cause this to happen this time around, because they had mostly been packaged and sold to outsiders such as the unfortunate IKB. However the drying up of the LBO market is causing illiquidity at the heart of the system. In just a few weeks, the major LBO market lenders have provided transaction bridge financing (short term lending) totaling around $12 billion for the Chrysler LBO, $20 billion for Boots and $35 billion for Texas Utilities, to name only 3 deals. Long term takeout financing for all three transactions appears now to be unobtainable; hence major bank and investment bank balance sheets have suddenly become highly illiquid and concentrated in a few unattractive credit risks.


Assets become almost impossible to sell during a credit crunch, and trading books become ossified, with remnants of deals attempted years earlier remaining on them and clogging up liquidity. Bargain-hunters attempt to pick up equity and loan assets involved in the crunch at prices far below those of a year earlier, but the “bargains” are chimerical; most such assets end in bankruptcy as confidence never returns.


Credit crunches don’t typically end quickly; their effects drag on for at least a couple of years. During that period, credit is very difficult to obtain and even well-run solvent companies can find themselves in sudden difficulties. It is impossible to predict which companies will be forced to declare bankruptcy, but major bankruptcies there will undoubtedly be. One difference from the 1970s is the increased importance of trial lawyers and aggressiveness of prosecutors; if 2001-05 is anything to go by, bankruptcies will be followed by prosecutions of the managements involved, sequestrations of their assets and generally lengthy prison terms. Jeff Skilling’s fate in the U.S. has not been all that different to Mikhail Khodorkovsky’s in Russia, although his prison is probably somewhat warmer than the latter’s Siberian incarceration.


Stock markets and real estate markets will go into a lengthy period of illiquidity and quiescence, with price drops far in excess of those currently expected. In a period when credit is almost impossible to obtain, valuation metrics that depend on the use of credit quickly become worthless. US business is far more leveraged than in 1973; its decline in value will thus be correspondingly more intense. Only liquid companies in the liquid countries of East Asia, particularly Japan, and maybe the Arabian Gulf states are likely to be fortified by the experience.


Joyful prospect, isn’t it? But that’s what happens after a decade of fiat money run mad.

BeTheMiracle and TwoHawks;

I just learned this evening of the post that was made at your website by Wasayo regarding the conversation that took place at Buddha's Garden. I was stunned when I read it and terrible hurt, for myself, for you, for Two, for all involved. I was a part of that conversation and I assure that there was no ill intent regarding what was said. I personally looked up both totems to confirm that only good energy was being sent. Also, Amiawake is a Native American and you must know that she is very knowledgeable regarding totems and wishes only love and light for you both and your site. She is the one who suggested sending a lizard on your behalf. At first I was surprised, but when I researched it on the web, I knew she only meant well. and was sending the absolute best energy your way. But, that is Ami!

Right after Buddha sent you the dragon flies, he found this site... and if you notice the very top picture is of dragonfiles. I saved it as one of my favorite places I liked it so much.

http://www.earthbornerising.com/

I have a true heartfelt problem with someone who deliberately does things to put wedges between people that have no wedge. My heart actually ached that this was done. I also feel she posted the part about "my old psychologist" purposely to hurt and embarrass. This had nothing to do with the point she was trying to make regarding Buddha. It is my opinion that it was done out of a deep and dark place that I pray I never fiind in myself.

I have no argument with you or Two. I had none with Wasayo until today when I saw what she had done. I was bothered by her negative posts regarding the economy because I refuse to live my life in fear. But what happened today is completely different in my eyes.

Please know that I only wish the best for you both and that good things come to you, your love and your site.

If you have any questions regarding anything, do not hesitate to ask. I cannot speak for Ami or Buddha, but I feel their hearts would be open to any questions you may have also.

Thank you for taking the time to read this. I felt in my heart I needed to say it.

Loey

Loey wrote:

BeTheMiracle and TwoHawks;

I just learned this evening of the post that was made at your website by Wasayo regarding the conversation that took place at Buddha's Garden. I was stunned when I read it and terrible hurt, for myself, for you, for Two, for all involved. I was a part of that conversation and I assure that there was no ill intent regarding what was said. I personally looked up both totems to confirm that only good energy was being sent. Also, Amiawake is a Native American and you must know that she is very knowledgeable regarding totems and wishes only love and light for you both and your site. She is the one who suggested sending a lizard on your behalf. At first I was surprised, but when I researched it on the web, I knew she only meant well. and was sending the absolute best energy your way. But, that is Ami!

Right after Buddha sent you the dragon flies, he found this site... and if you notice the very top picture is of dragonfiles. I saved it as one of my favorite places I liked it so much.

http://www.earthbornerising.com/

I have a true heartfelt problem with someone who deliberately does things to put wedges between people that have no wedge. My heart actually ached that this was done. I also feel she posted the part about "my old psychologist" purposely to hurt and embarrass. This had nothing to do with the point she was trying to make regarding Buddha. It is my opinion that it was done out of a deep and dark place that I pray I never fiind in myself.

I have no argument with you or Two. I had none with Wasayo until today when I saw what she had done. I was bothered by her negative posts regarding the economy because I refuse to live my life in fear. But what happened today is completely different in my eyes.

Please know that I only wish the best for you both and that good things come to you, your love and your site.

If you have any questions regarding anything, do not hesitate to ask. I cannot speak for Ami or Buddha, but I feel their hearts would be open to any questions you may have also.

Thank you for taking the time to read this. I felt in my heart I needed to say it.

Loey

Well, Loey,


Guess what... I am part Native American too (Shawnee) and my name "Wasayo" is both Hopi and Shawnee, and was given to me by a Hopi chief. So I know a tad about totem animals and real estate and reality too.


In that now "Error 404 not found" shout box of his, Buddha said he KNEW it was public and he wanted it that way. If he hasn't already deleted the History of it, you can plainly see that Buddha was glad it was public because he said so in front of you... and glad that the whole internet could see every private thing everyone was saying. As you say, you were there and Amia also was there... neither of you even heard him say this.


Not only that, it was Melissa (BTM) who warned Buddha on Prophecies that his shout box was public. She was concerned that the privacy of many was being violated. This happened on the "Questions about firing the grid" thread under the Anything Goes section there. Buddha/Taoist Rebel/Kincaid told BTM that he "fixed it" and guess what again... he didn't. But right after all this came up yesterday... it sure did go missing, didn't it?


I don't know what part of this you are not getting, Loey, by continuing to blame *me* for publishing one tiny part of Buddhas shout box from Buddhas Garden.


*Buddha* knew it was ALL public and since he wanted it that way and he told you all that it was open for anyone to read... and none of you "heard" him (too negative? too frightening? too real?)... cuz you all have selective hearing... and you want a scapegoat and you NEED Buddha so you blame me.


YOU are responsible for talking privately on a PUBLIC shoutbox that could be read all over the internet (and Buddha knew it)... and I am not the only one by a long shot who was reading it! And Buddha is responsible for making it that way, for wanting it to be public, and for not correcting it... until *after* this post of mine. I am sorry if reality upsets you and takes you away from endless light and love, Loey. Reality bites, and so does karma.


I think you are riding the wrong horse and discerning energy fields is certainly not your forte nor is it Amiawake's. Time will surely tell.


I could care less.

Here's my final "news flash" for you, Loey.


I first found out that Buddhas shout box was PUBLIC and ALL OVER THE INTERNET when I was working with HKM Productions to set up my online professional psychic websites again... and I just happened to google my own name, "Wasayo". I was looking for my original artwork... and I found right up-to-the-minute, live shout box chat for all the world to see.


I got busy and didn't do anything about it, and then I saw Melissa's post to Buddha ("your shout box is public and anyone can read the private things people are saying") on, as I said... peaceful's thread called "Questions about firing the grid" under the Anything Goes section at the Prophecies forum.


You accuse me of having *a very dark side* for posting one tiny part of Buddhas' PUBLIC shout box... when every single day, all day every day... everything was public.


WHO has the dark side, Loey? If you use your rational brain, would it not occur to you that this just might be Buddha? Or do you NEED him too much to admit it... you and Amiawake?


It was Buddha's shout box. Buddha designed it, set it up. He and Amia took it down late last night together. This means Buddha had the ability at any time to change it and make it NOT PUBLIC and he did not. I have all this in "hard copy", Loey.


He could have corrected it. Buddha CHOSE NOT TO correct or change it until last night... after this thread.


Sez alot... about both Buddha and you, Loey.


Methinks the "dark side" you see in me is your own reflection.

Sadly, more...

*******************


Worse than LTCM: Not Just a Liquidity Crisis; Rather a Credit Crisis and Crunch

Nouriel Roubini | Aug 09, 2007


The global market turmoil got ugly today forcing the ECB and the Fed to inject liquidity in the financial system as the concerns about subprime, credit and debt turned into a full blown liquidity run and crisis. As in 1998 at the time of the LTCM crisis, the Fed and global central banks decided to ease monetary policy in between meetings and injected a large amount of liquidity into the system. Coming two days after the Fed tried to prevent perceptions of a "Bernanke put" by signaling in its FOMC statement no Fed easing and no bail out of the financial system, the Fed actions today are certainly ironic if necessary given the massive liquidity seizure in the financial markets.


But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode. Let me explain why. Economists distinguish between liquidity crises and insolvency/debt crises. An agent (household, firm, financial corporation, country) can experience distress either because it is illiquid or because it is insolvent; of course insolvent agents are – in most cases - also illiquid, i.e. they cannot roll over their debts. Illiquidity occurs when the agent is solvent – i.e. it could pay its debts over time as long as such debts can be refinanced or rolled over - but he/she experiences a sudden liquidity crisis, i.e. its creditors are unwilling to roll over or refinance its claims. An insolvent debtor does not only face a liquidity problem (large amounts of debts coming to maturity, little stock of liquid reserves and no ability to refinance). It is also insolvent as it could not pay its claim over time even if there was no liquidity problem; thus, debt crises are more severe than illiquidity crises as they imply that the debtor is insolvent, i.e. bankrupt, and its debt claims will be defaulted and reduced. In emerging market crises of the last decade, we had liquidity crises (i.e. a solvent but illiquid sovereign) in Mexico, Korea, Brazil, Turkey; we had debt/insolvency crises (a sovereign that was both illiquid and insolvent) in Russia, Ecuador, Argentina.


The 1998 LTCM crisis was mostly a liquidity crisis: the US was growing then at 4% plus, the internet bubble had not burst yet, we were in the middle of the "New Economy" productivity boom, households were not financially stretched and corporations were not financially stretched with debt either. In spite of those sound and solvent fundamentals the collapse of Russia – a country then with the GDP of a country such as the Netherlands – caused a global liquidity seizure and crisis of the type experienced by credit markets in the last few weeks: sudden demand for cash liquidity, sharp increase in the 10 year swap spread, sharp increase in the VIX gauge of investors’ risk aversion, liquidity drought in the interbank and euro-dollar market, deleveraging of highly leveraged positions, reversal of the yen carry trades. With the exception of the credit event in Russia, this was not a credit/insolvency crisis. And since it was a liquidity crisis the Fed easing – 75bps – was successful in restoring in a matter of weeks calm and liquidity in financial markets. Even that liquidity episode had painful credit fallout: it is not remembered by most but the entire subprime mortgage industry went bankrupt in 1998-99 following the LTCM liquidity crisis. So a liquidity shock event triggered massive credit events then.


Today we do not have only a liquidity crisis like in 1998; we also have a insolvency/debt crisis among a variety of borrowers that overborrowed excessively during the boom phase of the latest Minsky credit bubble.


First, you have hundreds of thousands of US households who are insolvent on their mortgages. And this is not just a subprime problem: the same reckless lending practices used in subprime – no downpayment, no verification of income and assets, interest rate only loans, negative amortization, teaser rates – were used for near prime, Alt-A loans, hybrid prime ARMs, home equity loans, piggyback loans. More than 50% of all mortgage originations in 2005 and 2006 had this toxic waste characteristics. That is why you will have hundreds of thousands – perhaps over a million - of subprime, near prime and prime borrowers who will end up in delinquency, default and foreclosure. Lots of insolvent borrowers.


You also have lots of insolvent mortgage lenders – not just the 60 plus subprime ones who have already gone out of business – but also plenty of near prime and prime ones. AHM – that went bankrupt last week – was not exposed mostly to subprime; it was exposed to near prime and prime. Countrywide has reported sharp losses not only on subprime lending but also on prime ones. So on top of insolvent households/mortgage borrowers you have plenty of insolvent mortgage lenders, subprime and - soon enough - near prime and prime.


You will also have – soon enough – plenty of insolvent home builders. Many small ones have gone out of business; now it is likely that some of the larger ones will follow in the next few months. Beazer Homes – a major home builder - last week had to refute rumors of its impending insolvency; but so did AHM a few weeks before its insolvency. With orders for home builders falling 30-40% and cancellation rates above 30% more than a few home builders will become insolvent over the next year or so.


We also have insolvent hedge funds and other funds exposed to subprime and other mortgages. A few – at Bear Stearns, in Australia, in Germany, in France – have already gone bankrupt or are near bankrupt. You can be sure that with at least of $100 billion of subprime alone losses – and most losses are still hidden given the reckless practice of mark-to-model rather than mark-to-market - many more will go belly up. In the meanwhile the CDO, CLO and LBO market have completed closed down - a “constipated owl” where “absolutely nothing moves” the way Bill Gross of Pimco put it. This is for now a liquidity crisis in these credit markets; but credit events will occur given that the underlying problem was not of of liquidity but rather one of insolvency: if you take a bunch of to-be-defaulted subprime and near prime mortgages and you repackage them into RMBS and then these RMBS are repackaged into various tranches of CDOs, the rating agencies may be using magic voodoo to turn those junk BBB- mortgages into AAA tranches of CDOs; but this is only voodoo as the underlying assets are going to be defaulted on.


Moreover, the recent sharp widening in corporate credit spreads is not just a sign of a liquidity crunch; it is a sign that investors are realizing that there are serious credit/solvency problems in some parts of the corporate system. Ed Altman, a colleague of mine at Stern, is recognized as the leading world academic expert on corporate defaults and distress. He has argued that we have observed in the last few years record low default rates for corporations in the U.S. and other advanced economies (1.4% for the G7 countries this year). The historical average default rate for US corporations is 3% per year; and given current economic and corporate fundamentals the default rate should be – in his view - 2.5%. But last year such corporate default rates were only 0.6%, i.e. only one fifth of what they should be given firms' and economic fundamentals. He also noted that recovery rates - given default - have been high relative to historical standards.


These low default rates are driven in part by solid corporate profitability and improved balance sheets. In Altman’s view, however, they have also been crucially driven - among other factors - by the unprecedented growth in liquidity from non traditional lenders, such as hedge fund and private equity. Until recently, their demand for corporate bonds kept risk spreads low, reduced the cost of debt financing for corporations and reduced the rate of defaults. Earlier this year Altman argued that this year "hot money" from non traditional lenders could move to other uses for a number of reasons, including a repricing of risk. If that were to occur, he argued that the historical patterns of default rates - based on firms’ fundamentals - would reassert itself. I.e. we are not in a new brave world of permanently low default rates. He said: "If we observe disappointing returns to highly leveraged and rescue financing packages, some of the hedge funds may find it difficult to cover their own loan requirements as well as the likely fund withdrawals. And broker-dealers who are not only providing the leverage to the hedge funds but whom are also investing in similar strategy deals will recede from these activities." The same could be said of the consequences of the unraveling of some leveraged buyouts. Altman suggested that triggers of the repricing of credit risk could also be "disappointing returns to highly leveraged and rescue financing packages". So he argued that the unraveling of the low spreads in the corporate bond market could occur even in the absence of changes in US and/or global liquidity conditions.


Thus, until recently the insolvent firms in the corporate sectors included corporations that could service their debt only by refinancing such debt payments at very low interest rates and financially favorable conditions. Many firms, under normal liquidity conditions, would have been forced into distress and debt default (either of the Chapter 7 liquidation form or Chapter 11 debt restructuring form) but were instead able to obtain out-of-court rescue and refinancing packages because of the most easy credit and liquidity conditions in bubbly markets. Now that we are observing a liquidity and credit crunch and a vast widening of credit spread you will observe a sharp increase in corporate defaults and a further risk in corporate risk spreads.


Insolvent and bankrupt households, mortgage lenders, home builders, leveraged hedge funds and asset managers, and non-financial corporations. This is not just a liquidity crisis like in the 1998 LTCM episode. This is rather a liquidity crisis that signals a more fundamental debt, credit and insolvency crisis among many economic agents in the US and global economy. Liquidity runs can be resolved by the liquidity injections by a lender of last resort: in the cases of the liquidity crises of Mexico, Korea, Turkey, Brazil that international lender of last resort was the IMF; but in the insolvency crises of Russia, Argentina, and Ecudaor the provision of the liquidity by the lender of last resort – the IMF – only postponed the inevitable default and made the eventual crisis deeper and uglier. And provision of liquidity during an insolvency crisis causes moral hazard as it creates expectations of investors’ bailout. Thus, while the Fed and the ECB had no option today but to provide massive liquidity in the presence of a most severe liquidity crunch and run, they should not delude themselves that this liquidity injections can resolve the deep insolvency problems of many overstretched borrowers: households, financial institutions, corporates. Insolvency/credit crises lead to financial and economic distress – hard landing of economies – and cannot be resolved with liquidity injections by a lender of last resort. And now the vicious circle of a weakening US economy – with a housing recession getting worse and a fatigued consumer being at the tipping point - and a generalized credit crunch sharply has increased the probability that the US economy will experience a hard landing. We are indeed at a "Minsky Moment" and this recent financial turmoil is the beginning of a much more serious and protracted US and global credit crunch. The risks of a systemic crisis are rising: liquidity injections and lender of last resort bail out of insolvent borrowers - however necessary and unavoidable during a liquidity panic- will not work; they will only pospone and exacerbate the eventual and unavoidable insolvencies.



Link: http://www.rgemonitor.com/blog/roubini/

http://www.godlikeproductions.com