Journal tomhudson's Journal: Now that IndyMac is dead ... the next imploders [updated] 15
Update: Cost of bailing out Fannie and Freddie is $1 Trillion
Fannie and Freddie are among the most highly-leveraged companies around, meaning the amount of capital they have on hand is nowhere close to the level of assets they control.
Fannie and Freddie must constantly borrow money in order to operate; if for any reason borrowing costs rose sharply they would not be able to make good on their guarantees or even fund their day to day operations. This is when the government would feel intense pressure to step in and, at the very least, pay contracts in a timely manner.
In an April report, Standard & Poor's said an Armageddon scenario whereby Fannie and Freddie are insolvent is unlikely, but that the mere possibility of failure at either is a greater threat to the economy than the actual collapse of any investment bank.
The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.
NOTE: Since then, people have figured that at least one, and more likely both, are at least "technically insolvent."
Original post follows:
Obvious candidates are Citibank, MBIA, Ambac, the Big 3 Automakers
After taking another $12 billion writedown and losing $5 billion, Citigroup is nowhere near the halfway point of marking down bad assets. Total toxic waste could exceed $80 Billion. How much of that is recoverable? Who knows, but Citigroup is a good example of a dead man walking
Mortgage insurers MBIA and Ambac need to raise capital
GM has a huge problem with their suppliers. Having aggressively bargained them down to below-profit levels, suppliers are going bankrupt and ceasing production. If you can't get the parts, you can't build them, even if you had potential buyers.
Ford has had the guts kicked out of their 30-year cash cow - F-series pickup trucks.
Chrysler's production mix is almost 80% minivans and trucks - not good when people want fuel-efficient cars.
A possible candidate: Bank of America fished a turd out of the bowl when it bought Countrywide. We'll see how the lawsuits and liabilities play out
Mood: The economy doing the limbo - "How low can you go?"
Insulation (Score:2)
Re: (Score:2)
Up here in Canada we're also worried about being sideswiped by the US. We've been preparing for it for more than a decade, when we eliminated our federal deficit and started paying down our debt, but the US is our biggest customer, and we're their biggest customer as well, so there's a lot of interdependence.
The "Friedman Unit" is both pretty funny and pretty accurate as a unit of bs measurement, btw.
The original OPEC oil crisis in the '70s strained the banking system - the problem being how to recycle t
Re: (Score:2)
we eliminated our federal deficit and started paying down our debt
Funny thing the US was doing that too only 8 short years ago. Hopefully with a somewhat saner tax structure[1] and an end to our current foreign misadventures we can go back to that.[2]
The US has to come to grips with its' population problem, or it will end up with more than a half-billion people. It can't sustain its' current population "in the style they've grown accustomed to"; the next generation is going to have to make do with less.
Like Canada this is mostly a result of immigration. Without immigration the population of the US would actually be shrinking.
[1]Restore taxes on the top 5% to what they were under Clinton. Restore the estate tax. Put capital gains and corporate rates back to the Clinton levels.
[2]Sigh, if only Gore had won another large state
Re: (Score:2)
The current US birth rate is 2.1 per couple [washingtonpost.com]. Population will peak at anywhere from 480 billion to 651 billion - and neither peak is sustainable.
Taxes HAVE to increase under any future administration, now that investors don't want to continue any "easy money" policy to the US.
What's population-neutral? (Score:2)
Re: (Score:2)
It used to be thought that 2.1 was needed for steady-state, to account for those who die in childhood. It's now 2.0-something if you ignore immigration (damn kids aren't dying quickly enough, I guess ... just joking ...), and 1.-something if you include immigration.
Also, gays and lesbians certainly do reproduce. And all a lesbian needs is an internet connection and a turkey baster ;-0
Re: (Score:2)
Just to clarify I'm not anti-immigration. Just stating demographic fact. Without immigrants the US would have a birth rate similar to Western Europe.
Re: (Score:2)
Here's what I should have added, but didn't:
In the WaPo article, an expert makes the point that neither rapid population growth nor a declining population is ideal. You want a situation that is close to population-neutral. So in addition to the economic growth of the USA from a bunch of agrarian colonies to
Re: (Score:2)
Just one point to ponder ... the expert in the WaPo article is wrong ... in making the assumption that productivity stays the same. If productivity increases, then a decline in population results in a higher standard of living for everyone, and no shortage of labour.
Also, the only real problem in the "declining population" scenario is the ratio of workers to non-workers. Increased productivity takes up part of that slack, and if we can eliminate the "lifestyle diseases", that should take up more. Automa
Re: (Score:2)
The current US birth rate is 2.1 per couple. Population will peak at anywhere from 480 billion to 651 billion - and neither peak is sustainable.
Mostly due to immigrants having kids.
Mind you I'm not saying I want to stop or even curtail immigration.
Getting the birthrate for US born (of all types) down is probably the best for getting to a sane population level. One unpopular measure I would support would be to eliminate all dependent deductions and tax credits. People shouldn't get tax breaks for their crotch-fruit.
My thoughts (Score:2)
Obvious candidates are Citibank, MBIA, Ambac, the Big 3 Automakers
Add WaMu to the list. They are up to their eyeballs in option ARMs.
The slowdown in housing and construction is going to impact home improvement chains. Not sure if it will cause them to go under, but expect to see some layoffs and store closings at the very least.
Probably a major airline or two will go belly up soon. Expect some other vacation/leisure related companies to follow.
Rumor has it that the Bush administration is doing everything it can to hold off the full economic shitstorm until after November.
Re: (Score:2)
For the airlines, it would probably be easier to list those that aren't in danger of going broke ... yet again ...
Definitely the big-box home renovators are taking it on the chin. Home Depot is feeling the pain, down by half in the last year.
Definitely also WaMu ...
By allowing Fannie and Freddie to borrow at the "lender of last resort", they've pretty much confirmed that
Re: (Score:2)
Definitely also WaMu
Damn. At least my cash-on-hand(*) is below the FDIC limit. Maybe it's time to look at opening an account at one of the small credit unions around here. I wonder if I can interview them on their lending practices in order to pick one that's solvent ;)
*: I don't think it's time to start burying $100 bills in a can in the back yard. Yet.
Re: (Score:1)
You'd bury your toilet paper supply? Why? ;-)
Citigroup (Score:1)
After taking another $12 billion writedown and losing $5 billion, Citigroup is nowhere near the halfway point of marking down bad assets. Total toxic waste could exceed $80 Billion. How much of that is recoverable? Who knows, but Citigroup is a good example of a dead man walking ...
Not true. Citigroup has lost a lot of money the past 3 quarters, but at the current rate, losses should be stopped before the end of this quarter.
They went from 17 bn, to 9 bn to 2.5 bn. That's an average of 7 bn per quarter.
A