








great graph !!!
As has been pointed out in a piecemeal fashion throughout other threads ...
- Commercial Real Estate mortgage defaults will be the next 'shoe to drop' ... with an announcement just today that a huge Florida mall owner will be handing the keys back to the mortgage holders. As retailers in particullar, and all sorts of other businesses face cutbacks, this also means a disturbing increase in the vacancy rates at shopping malls, industrial parks, office buildings, etc. Falling rent revenues at the same time local governments are increasing business property taxes is a sure formula for default. And unlike residential property (subprime or otherwise), where a bankruptcy would result in loss of additional assets by the property owner, commercial real estate ownership is usually 'well insulated' by corporate shells (meaning the owners have nothing additional to lose by going bankrupt).
- prime residential real estate mortgage defaults are gathering steam as well. These often stem from a fundamental economic change in the life of the property owner i.e. losing a high paying union or government job that can never be replaced in kind, losing money on investments or having interest / divident payments fall drastically, etc.
- credit card defaults are now rising to record levels as banks jack interest rates / fees while at the same time cutting credit limits and tightening criteria for new accounts. As such, typical past practices of 'rolling over' debt on one credit card onto a new credit card account simply aren't possible anymore.
- car loan defaults are also rising to record levels for the same basic reasons as prime mortgage defaults ... i.e. the loss of a very high paying job that simply cannot be replaced. This is actually a double whammy since sales of repo'd vehicles at auction depresses prices for used vehicles across the board ... which in turn serves as a disincentive for continued payments on an auto loan that now greatly exceeds the 'collateral' value of the vehicle.
As with subprime mortgages, ALL of these other types of loans have been rolled up into bonds and sold into secondary bond markets. But unlike subprime mortgages, there isn't any government sponsored entity like Fannie Mae or Freddie Mac to serve as the 'buyer of last resort' for such bonds. As such, as the default rates start to rise, bondholders are likely to jump ship ... leaving little investment money available to provide the capital with which to make new CRE, auto or credit card loans.
~
Last edited by Melonie; 12-20-2008 at 06:26 PM.





That only makes sense. Even in good times the average small business stays in business only a few years at most. And with the lack of commercial spending, I'll bet most go under soon. Glad I don't have any small business commercial properties I'm collecting rent from.
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.





^^^ true ... but even so Commercial Real Estate is only one aspect of the impending defaults.
As scary as this tidbit might seem, American Express filed for several billions in TARP money today due to an unprecedented level of Amex credit card defaults. No this isn't 'subprime credit card specialist' Capital One. No this isn't 'illegal immigrant credit card specialist' Bank of America. This is upscale credit card specialist American Express !!!





It's getting rough out there. Look at these predictions... http://money.aol.com/investing/compa...appear-in-2009
One thing about the OP... I don't understand that graph (or its source), interesting as it is, esp about the subprime loans being a small part (as I've been stating for months here).
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.





^^^ that graph is supposedly based on FED flow of funds data and Paulson estimates. There is obviously a mountain of individual data behind each bar of that graph. Much of the projected defaults actually stems from the originally written mortgages and their 'teaser' interest rate reset dates. Yes the bulk of 'subprime' residential mortgages originated in the last few years hit their resets in 2008, with some extending into 2009. However, many 'prime' mortgage first resets aren't due up until 2009 or 2010. Same goes for 'pay option' ARMS.
Future FNM/FRE and corporate bond risk also follows a similar timeline, as pending maturities of existing bond obligations in 2009 and 2010 will need to be refinanced by the world debt markets (which are becoming increasingly reluctant to keep buying US dollar denominated debt ad infinitum, and particularly so at historically low interest rates). Obviously, having a 4% interest rate bond mature next year which must be refinanced at a 7-8-10% interest rate vastly increases the probability of default in an economy where corporate profitability is rapidly declining. Along those lines, some GM corporate bond buyers are now demanding a 50% plus interest rate by devaluing the asking price of existing bonds to pennies on the dollar of principal.
Probably a whole lot more meaningful presentation of financial 'distress' data can be better digested in a different format ...
[img] [/img]



At a press conference about 1 week ago, a journalist asked the ECB press officers team whether, "There might be a credit card crunch in Europe?"
The answer was, "Of course." The surprise - I am told - wasn't the answer, but the question ... isn't it obvious???





^^^ yes obvious indeed ! Essentially, the EU and the US both suffer from the same fundamental problem ... non-competitively priced labor costs and gov't mandated business costs compared to Asia (or in the EU's case eastern europe and the near east or in US case Mexico). And both are suffering the same consequences ... arguably permanent loss of high paying manufacturing and service jobs, with associated permanent reduction in middle class 'earning power'.
And here's a 'shocker' for you ... the latest US FED flow of funds report
Yes that's right the US household sector has (been forced to) reduce borrowing by over 100 billion, while the US government has ADDED TWO TRILLION DOLLARS worth of new debt in the third quarter (which ended in September). I bet the world can't wait to see the fourth quarter data next March !!!
~
Last edited by Melonie; 12-24-2008 at 10:40 PM.





The way I read the household sector borrowing, seasonally adjusted over the last 2 years:
Q-1 $500B less,
Q-2 $900B less,
Q-3 $900B less
About $200B less of 2007 over 2006. But look at line 8 !
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.





^^^ roughly correct on the quarters, as well as on the annual comparison. In fact if you extrapolate for all of 2008 you're probably looking at a $700 billion reduction versus 2007.
But the kicker is that gov't borrowing and spending in 2008 will have increased by nearly 3 trillion dollars, which vastly overshadows the reduction in personal and business spending. Thus the real serious question is WHERE the gov't is spending this money and WHO is benefitting from this spending. Bloomberg and FoxNews have both attempted to sue the FED for public release of this information ... but so far nada.





^^ Big businesses of course -- insurers, security-mongerers, banks. Who else?
I guess the question is which ones..... It's our money, so we have a perfect right to know.
I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.
Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.
NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.
Bookmarks