The "credit crunch"

[Rhylan]

THE CREDIT MARKETS ARE FROZEN UP!

Please holla back if you're still getting offers in the mail multiple times a week for credit cards and bank loans, like me.

[DirkFTW]

I am, but ironically, I applied for one and got rejected. Bastards.

[ocelot_ark]

Every single day. Of course, I pay my bills and stuff, so that might help. I ought to call all of my CC companies and see if they'll raise my limits just as an experiment.

[mcsluggo]

but how about companies.... AT&T was effectively frozen out of the commercial paper market for 2 days.

http://www.bloomberg.com/apps/news?p...d=apN0dqws1jxU


A farking T and T. that kills companies. Kills them dead.

three-month LIBOR (the rate that banks charge to each other) routinely paid 5 to 10 basis-points (0.05% to 0.1%) over the risk free US treasuries 3 month rate for years until last summer. then last autumn LIBOR spiked at around 100 basis points, and the finance world collectively crapped a brick, banks failed and we thought we were at the gates of doom. after a couple of spikes it dropped down to a fairly stable 60 points or so for a while... until this month. It is now pushing 300 points. this is BANK to BANK. AAA rated coprporates pay more. less than AAA pay more still. BB rated companies ....good luck.

Credit is the Oxygen of the business world. Healthy marathon runners die if they don't have oxygen. Same is true for firms. FIrms die from this. Healthy firms die from this. How many healthy firms can this country lose before it starts to hurt, even on Main Street Lewinsville, TX?

Banks are not normal firms. Banks are special. If AT&T dies there is a ripple effect that spreads through the economy. If Citibank dies (and the rest of the industry isn't healthy enough to pick up the pieces) there is a tital wave instead.


I really don't think people truly get what will happen if our banking industry collapses. We move from being the US to being Argentina. this is bad.


HOWEVER... likely we will manage to limp through it. we will have a big slowdown, bad stocks, high unemployment, etc etc. etc.. but we will limp through it... and the person on the street will bitchmoanandcomplain about the fact that we gave wall street all that money and got nothing out of it. Folks, this is the BEST CASE possibility... we don't even want to contemplate the worst case scenario....

[mcsluggo]

ask the Icelandic people if there is a credit crunch...

going to RUSSIA hat in hand is like asking Tony Soprano for a loan... you better be hurting pretty damn bad befor you even CONTEMPLATE it...

Geopolitical Diary: A Russian Financial Power Play in Iceland
October 8, 2008
The Russians are coming. Only this time they are invited and by Icelanders of all people.

Icelandic Prime Minister Geir Haarde confirmed Tuesday that indeed the NATO member state and staunch U.S. ally against the Soviet Union during the Cold War had asked for a $5.43 billion (4 billion euro) loan from its “new friend” Moscow and that it did so because it found no aid coming from its Western allies. Iceland’s economy has been devastated by the global credit crunch that destroyed its banking sector and currency. Icelandic banks have been either nationalized or propped up by the state, but the krona (Iceland’s currency) is falling precipitously. The Russian loan may have staved off a speculative run on the krona that ultimately saves the country from complete bankruptcy.

It was hard not to notice the bitter and wounded tone of Haarde, particularly when explaining why Reykjavik turned to Moscow for help in the face of rejection from his country’s equally financially stressed Western allies. That tone may soon be repeated by a number of countries as the financial crisis picks off the weakest and shakiest economies, a tone that will certainly be welcomed by the Kremlin looking to extend its influence globally.

Of course, the game of handing out money to allies in exchange for influence is not new to Moscow. The Soviet Union based its foreign policy in large part on buying allies (particularly in the Middle East and Africa), a strategy that to an extent helped bankrupt Moscow and bring the Cold War to an end. Thus far, post-Soviet Russia has been extremely careful and frugal — even the Iceland financial package is a loan and not a grant — in part because of its experiences and lessons from the Soviet era and in part because there was not any money to be shared with potential allies in the aftermath of the Soviet collapse.
..... <<more from Stratfor....>>>>

[kg_veteran]

Originally Posted by mcsluggo

but how about companies.... AT&T was effectively frozen out of the commercial paper market for 2 days.

http://www.bloomberg.com/apps/news?p...d=apN0dqws1jxU


A farking T and T. that kills companies. Kills them dead.

three-month LIBOR (the rate that banks charge to each other) routinely paid 5 to 10 basis-points (0.05% to 0.1%) over the risk free US treasuries 3 month rate for years until last summer. then last autumn LIBOR spiked at around 100 basis points, and the finance world collectively crapped a brick, banks failed and we thought we were at the gates of doom. after a couple of spikes it dropped down to a fairly stable 60 points or so for a while... until this month. It is now pushing 300 points. this is BANK to BANK. AAA rated coprporates pay more. less than AAA pay more still. BB rated companies ....good luck.

Credit is the Oxygen of the business world. Healthy marathon runners die if they don't have oxygen. Same is true for firms. FIrms die from this. Healthy firms die from this. How many healthy firms can this country lose before it starts to hurt, even on Main Street Lewinsville, TX?

Banks are not normal firms. Banks are special. If AT&T dies there is a ripple effect that spreads through the economy. If Citibank dies (and the rest of the industry isn't healthy enough to pick up the pieces) there is a tital wave instead.


I really don't think people truly get what will happen if our banking industry collapses. We move from being the US to being Argentina. this is bad.


HOWEVER... likely we will manage to limp through it. we will have a big slowdown, bad stocks, high unemployment, etc etc. etc.. but we will limp through it... and the person on the street will bitchmoanandcomplain about the fact that we gave wall street all that money and got nothing out of it. Folks, this is the BEST CASE possibility... we don't even want to contemplate the worst case scenario....

We don't have to worry about any of this. We are being bailed out, remember?

[Rhylan]

From what I understand, Wells Fargo and Citi are in really good financial shape. So this seems to me like this is all a big opportunity for them to get the investment and liquidity necessary to continue making smart lending decisions for a broader base of clients.

Should be an opportunity for investors, too. If there really is a credit market crunch then financially sound lenders should be able to charge a small premium on account of actually being in a position to lend. Not enough to affect the consumers of the loan significantly, but in aggregate across the wider base of loan recipients, a nice plus for these institutions.

This seems a lot better than us giving more money to institutions who already showed they didn't know how to manage risk.

[mcsluggo]

they know how to manage risk, mostly, but incentives are a bit scewed (which is why we need regulation in this industry that we don't elsewhere)

a bank exec has equity upside that can shoot into the millions of dollars in a boom period. The more the company is levereged, the more this upside is increased, and the more the exec makes.

On the flip side, they can be fired.

one side of the equation====> hundreds of millions of dollars
balanced by ======> zero (oh ok... being forced down into hundreds of THOUSANDS of dollars instead).

Executives get upside benefits, but the instution suffers most of the downside costs. (along with the rest of us). Basic economics of incentive compatability is absent ----->>> there will be too much risk taking. (which LOOKS like poor risk management... but REALLY looks like calculated personal maximization)


and CItibank IS in really good financial shape, compared to the industry. Its stock price has ONLY dropped about 70% from its 52 week high (from 50ish to 15ish) ......... lets not forget that even with this bailout, there IS market punishment going on.

[mcsluggo]

Originally Posted by Rhylan

Should be an opportunity for investors, too. If there really is a credit market crunch then financially sound lenders should be able to charge a small premium on account of actually being in a position to lend. Not enough to affect the consumers of the loan significantly, but in aggregate across the wider base of loan recipients, a nice plus for these institutions.

.

and to an extent this is fine.. as long as those investors exist. But lets not forget that often these investors would get financing from.... well, banks.... for this sort of activity. some other sorces of liquidity and capital exist... but banks are affecting both the supply AND the demand for this market too much... when it starts slipping there is a quickly reinforcing negative feedback loop that can QUICKLY wipe out all value. AND once these loops really start... it is too late for govts to intervene, they can only pick up the pieces (which likely would be REAL nationalization. something we really really do not want to see)