Thread: Banks 'set to call in a swathe of loans'

http://www.telegraph.co.uk/money/main.j ... con126.xml


Banks 'set to call in a swathe of loans'

By Ambrose Evans-Pritchard
Last Updated: 7:25am BST 26/06/2007

The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.

Bear Stearns headquarters: Banks 'set to call in a swathe of loans'
Bear Stearns headquarters in New York

The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.

"Excess liquidity in the global system will be slashed," it said. "Banks' capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."

Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200m of the $850m mix.

"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said.

"God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.

"We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."
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US property writer Paul Muolo described the Bearn Stearns crisis as the “subprime Chernobylâ€

It had to start happening some time. You cannot keep borrowing and not be able to pay for the loan. Many many years ago, I was debt and could not even pay the miminum amount every month. the interest rates I paid were well above average and all I did was fall further and further behind. I got a second job and the money was strictly to pay off my creditors. It was difficult and when I look at something I really wanted, i asked myself was this something I needed or was it something that I wanted. Afterworking two jobs for a couple of years, I finally got everything paid off. the first thing I did was take my children out and purchased a nice them a nice present and informed them that this was a one time deal. that I was going to stop working so many hours and that while I was continue to the second job, I was cutting down on the hours so that I could spend more time with them.

Point of this story is that you cannot borrow when you cannot afford it, it catches up. our Federal government is getting over it's head with borrowing money and refuses to admit it needs to stop. Most earmarks are things that America does not need and we don't need to spend so much foreign aid (no one likes anyway). The government needs to cut spending not on all domestic programs but on wasteful items.

If you are not debt-free...get that way as fast as is humanly possible.

Easier said than done...it's possible if you do not waste money. If the purchase isn't for survival, DON'T BUY IT.

NO, I promise you... CD's, DVD's, iPhone's, Caffe Latte's, new fashions, fake nails, new cars...aren't necessary for survival.

Absolutely ... get out of debt as fast as you can any way you can ... do whatever needs to be done to make this happen.

BTT