Hello there, trillion-dollar derivative debt markets. If in a couple of years time I’m writing a book called The Crash of 2007, the first chapter is going to be about how these marvelous new debt instruments ended up making a very large financial smoking crater of the world markets. There will be a large section on fraudulent dealings and how billion-dollar swindles were perpetrated and who got thrown in jail forever, who jumped off the skyscraper, etc.
— Clem Chambers, CEO of investment site ADVFN.com and self-described “perma super-bull”.
The Looming Shoe? It sure feels that way, doesn’t it? We touched on the incessant chattering by the powers that be–and how odd it is that they’re this loud with the word “up”–which furthers the collective sense that there is something we’re not seeing.
Indeed, the Official Financial Talking Heads are uniformly saying, by golly, everything is just dandy, just a couple of teensy speed bumps, nothing to see here, move along. Meanwhile, hedge funds keep blowing up as central banks frantically try to stabilize the markets. But I’m guessing the emperor has no clothes.
That large smoking crater in the financial markets will affect all of us. Doubtless political extremists on all sides are jumping up and down with excitement, convinced this cratering will mean the end of capitalism / ZOG / the New World Order/ (fill in the blanks). But with 2-3 million in the US projected to lose their homes in the next year or so, this will be a catastrophe, pure and simple. Want to buy a house or a car? Interest rates are already rising, and even those with spotless credit and money down are being turned down for mortgages.
Credit card regulations will tighten even more. Miss a payment and you can expect massive penalties, and much higher interest rates on all your cards. Oh, sorry, that’s already happening. Imagine what it’ll be like six months from now. Need to do a bankruptcy? Congress (including Democrats) slammed that door shut a while back for most everyone. Maybe they’ll vote to bring back debtor’s prison instead.
This will be a major issue in the upcoming presidential election, no question about it. Incumbents of both parties will get tossed out on their butt if they don’t start getting on the clue train now.
Capitalism is characterized by a continuing boom-bust cycle, and the coming collapse may make the dot com bubble look smallish.
PS Calculated Risk is providing superb breaking coverage of this meltdown. They just posted that a) Countrywide Finance is reporting “unprecedented disruptions” in their portfolio. The stock was down 13% in the aftermarket on Thursday, b) yet another large hedge fund appears to be liquidating. Reports are it was down 7.5% from Aug 1-7, and possibly 10% down since then. Yes, you read that right. 10% down in 2 days. Their total portfolio
is was $3.8 billion.