The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.
US banks are very dependent upon foreign loans. Without the return of our trade deficit via loans, we're a poor nation.
Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods".
"I would even go further to say 'the worst is to come'," he said.
Without easy credit, our economy will contract. The Alt-A resets do not really get going until the spring. If you thought Subprime caused a credit crisis, wait for the Alt-A crisis (which is concentrated in 'high end' areas).
I found this chart from Deutsche Bank over at Patrick.net:
If that chart doesn't convince you that any property requiring a jumbo mortgage are ready to drop in price... Notice that all the data is normalized onto a annual basis! So every bar is comparable to every other bar. Notice that Alt-A stopped?!? Liar loans drove up the nice areas artificially.
Are you a good enough credit risk for the bank to hold the loan? Do realize, banks can only do about 10% of the mortgages they were doing without the flood of funds from the secondary market!
And you wonder why the Europeans believe our banks are in trouble and the worst is still ahead. (It is... 18 months of pain starting soon.)
I'm going to be a broken record: "We have not yet entered the tightest credit markets of this downturn." We're close. Within 90 days. I've blogged for a long time (two years?) about the mortgage rules during the 'darkest days of this downturn.' That doesn't start before next summer. Yes... summer 2009.
Its going to be a dark and cold Fall and Winter. While there is a chance of one last bear rally... I'm becoming less sure it will happen.
Less than 90 days until the start of the great squish down. Jim the Realtor came up with that term to describe how high end real estate was overbuilt more than other tiers during the bubble. The high end will push everything else down.
Got Popcorn?
Neil
