Credit Crunch: 1 Trillion Dollar Write-Down

[WA_Vol]

1 trillion dollar write-down:

Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, ``The Trillion Dollar Meltdown.'' That calculation assumes an orderly unwinding, which he doesn't expect.
``The sad truth,'' he writes, ``is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.''

Bloomberg.com: News

This on the heels of a 3 trillion dollar war, at what does America become insolvent? Or are we there now?

 

[SWIL]

We might already be there. Does anyone know how much $$$ we owe China?

 

[droski]

"writedowns" are not the same thing as losing your money. right now the credit markets are so out of wack that banks are writing down assets that have a high probability of paying off. these writedowns don't affect the american public in any meaningful way unless they own the stocks of the companies who are writing down this debt. now the increasing # of forclosures in the country could result in a complete colapse of homeowners equity which would be a huge problem for the average american, but that is not what we are talking about.

 

[volinbham]

This on the heels of a 3 trillion dollar war, at what does America become insolvent? Or are we there now?

I encourage you to look at how that $3 trillion # was arrived at. The authors are not suggesting that we have spent $3 trillion or that there have even been $3 trillion worth of costs so far. They are using assumptions to calculate a total end cost (decades out) of the Iraq war.

 

[therealUT]

1 trillion dollar write-down:




Bloomberg.com: News

This on the heels of a 3 trillion dollar war, at what does America become insolvent? Or are we there now?

Let's try to stick to facts, here..:clap:

 

[WA_Vol]

"writedowns" are not the same thing as losing your money. right now the credit markets are so out of wack that banks are writing down assets that have a high probability of paying off. these writedowns don't affect the american public in any meaningful way unless they own the stocks of the companies who are writing down this debt. now the increasing # of forclosures in the country could result in a complete colapse of homeowners equity which would be a huge problem for the average american, but that is not what we are talking about.

If the banks are writing down the losses from foreclosures, and the Fed insures the banks, then ultimately the Fed is on the hook aren't they?

 

[droski]

If the banks are writing down the losses from foreclosures, and the Fed insures the banks, then ultimately the Fed is on the hook aren't they?

well mostly the banks are writing down losses from asset backed bonds which hold the underlying mortgages. generally when a mortgage goes into forclosure with these bonds the mortgage has to get replaced with a new one. but they only have so much coverage.

the fed insures the banks deposits which has nothing to do with the banks actual investments. i suppose if the banks lose enough money and can't pay back people's deposits then the fed is on the hook, but writedowns are paper losses, not actual cash flow losses, and the fed definetly does not back paper losses.

 

[WA_Vol]

well mostly the banks are writing down losses from asset backed bonds which hold the underlying mortgages. generally when a mortgage goes into forclosure with these bonds the mortgage has to get replaced with a new one. but they only have so much coverage.

the fed insures the banks deposits which has nothing to do with the banks actual investments. i suppose if the banks lose enough money and can't pay back people's deposits then the fed is on the hook, but writedowns are paper losses, not actual cash flow losses, and the fed definetly does not back paper losses.

I have trouble believing the Fed is going to allow a bunch of banks to collapse. That would create widespread panic. The opposite of what they are trying to do.

They will just keep printing money, until the dollar is valued like a third world currency with enormous inflation. That seems more likely to me. The Fed wants to control everything.

 

[droski]

I have trouble believing the Fed is going to allow a bunch of banks to collapse. That would create widespread panic. The opposite of what they are trying to do.

They will just keep printing money, until the dollar is valued like a third world currency with enormous inflation. That seems more likely to me. The Fed wants to control everything.

they'll let the smaller banks collapse, not the big ones though. i very much doubt citi, bank of america, wells fargo, etc are going to need to get bailed out. all have massive positive cash flow.

and i'd rather have inflation than a bunch of huge banks collapsing. :dunno:

 

[BigPapaVol]

well mostly the banks are writing down losses from asset backed bonds which hold the underlying mortgages. generally when a mortgage goes into forclosure with these bonds the mortgage has to get replaced with a new one. but they only have so much coverage.

the fed insures the banks deposits which has nothing to do with the banks actual investments. i suppose if the banks lose enough money and can't pay back people's deposits then the fed is on the hook, but writedowns are paper losses, not actual cash flow losses, and the fed definetly does not back paper losses.

the bottom line is that the banks can now write down much of their paper without the big market beating that normally comes with weak credit quality. Next year, as many of the loans produce, it becomes found money and bank has removed any credit quality issues it might have had.

Forced writedowns are not losses. If they were, the Fed would induce far fewer.

 

[droski]

the bottom line is that the banks can now write down much of their paper without the big market beating that normally comes with weak credit quality. Next year, as many of the loans produce, it becomes found money and bank has removed any credit quality issues it might have had.

Forced writedowns are not losses. If they were, the Fed would induce far fewer.

i'd say most of the banks have taken a significant market beating. (my restricted stock account balance certainly reflects this )

 

[BigPapaVol]

i'd say most of the banks have taken a significant market beating. (my restricted stock account balance certainly reflects this )

they definitely have taken a beating, but while down like this is the time to air out the bad loans. They can't get beaten much more, so this is the time to write 'em down rather than work them out, so they're all taking the opportunity. Even the non-public types are more aggressive about writedowns today because the environment expects it as do their private shareholders, but their credit quality will be pristine going forward and they'll have plenty of found money income.