Writedowns Hit $500 Billion Mark
A: Hardly news, but just maybe a wake up call. As I and many others have said since 2007, this is not just a subprime problem. What starts at the lowest level, eventually climbs to near prime and ultimately prime. What started out as a mortgage problem, quickly spreads to auction rate securities, HELOC's, credit cards, auto loans, etc.. This is an overall debt problem. This is credit deflation and assets are being marked down as price discovery continues. The cockroach theory is in full effect, so we should all expect the banking woes to linger.
From Bloomberg's, "Banks' Subprime Losses Top $500 Billion on Writedowns":
Banks' losses from the U.S. subprime crisis and the ensuing credit crunch crossed the $500 billion mark as writedowns spread to more asset types.For those looking ahead, check out Calculated Risk's reference to Clayton's take on the coming ALT-A problems:The International Monetary Fund in an April report estimated banks' losses at $510 billion, about half its forecast of $1 trillion for all companies. Predictions have crept up since then, with New York University economist Nouriel Roubini predicting losses to reach $2 trillion.
"It just keeps spreading from one asset to another, so it's hard to know when these writedowns will stop," said Makeem Asif, an analyst at KBC Financial Products in London.
Clayton's report suggests that we may have now seen the beginning of the end of the subprime meltdown, but we are only at the end of the beginning of the Alt-A wave that is following it.It wont stop there. Alt-a, then prime, then credit cards, then auto loans, then student loans, then lawsuits, then jail sentences, then regulation, and then we know what credit deflation and peak credit is all about.According to Clayton, subprime delinquencies appear to have peaked in December of 2007, and subprime foreclosure starts may have peaked in January of 2008. The volume of foreclosures in process will remain elevated for a long time as these things work their way through lengthy foreclosure timelines, but the peak in FC starts is good news.
Unfortunately, Alt-A seems nowhere near its peak yet. Clayton's report, based on May data, indicates that both new delinquencies and foreclosure starts in Alt-A pools are still rising. Fannie Mae's recent conference call suggesting that Alt-A deteriorated even more sharply in July is yet more evidence that the Alt-A mess is still ramping up.
If Roubini is right, we are about 25% through the writedowns. This is globally, so it very well may reach that tally when we look back at this history making cycle in hindsight down the road. As we live through, it will just seem like the problem that won't go away. I think the US will lead out of the mess though, just like we lead into it; with foreign banks/writedowns adding to the tally when we exit the cycle. The question is, when?
Comments (8)
Not related to this post, but what the @#$% happened to inventory? Down to 6,000?
Posted by Richard | August 13, 2008 9:37 AM
It took 2 1/2 years for the NASDAQ to hit bottom. It also took 2 1/2 years for the S&L crisis to iron itself out. Our current mess will take at least that long.
Posted by Ex-Dot Commer | August 13, 2008 9:42 AM
yea I have an email into SE about that. Prob a bug. Should be ironed out soon.
Posted by Noah | August 13, 2008 11:38 AM
Noah, I also agree this is already and will continue to spread throughout other areas. I see this current situation ongoing for the next 3 years the amount of fraud and over-leveraging got to levels just never seen before. Here in Tucson AZ we have seen home price drops of 30% or more in some areas and I think here we have bottomed but a lot of areas still have not.
Posted by Michael Oliver | August 13, 2008 12:35 PM
Issue with Corcoran's listings...Ill have it fixed tomorrow
Posted by Noah | August 13, 2008 6:39 PM
Actually the S&L debacle of the late 80s and early 90s, started with residential markets that were oil and gas dependent like Texas, Oklahoma and Colorado blowing up, followed by Southern California and the Northeast. This was all followed by the commercial real estate market meltdown of the early 90s. The mess started in the mid 80s and wasn't really cleaned up until 1993 or so. Due to the mark to market phenomenon, this time and the ridiculously poor underwriting in consumer mortgages, that fire will rage faster and burn itself out sooner....but resi real estate prices may bottom and sit for 5 years. The credit card thing will unfold quickly due to the nature of those debts. The commercial real estate crunch is just getting started and will probably take a few years. It's onset has been delayed by interest reservesm where developers and buyers can actually borrow some of the money they will need to pay interest on loans for the first couple of years....as these start to run out the boom will come down.
Posted by jeff | August 13, 2008 8:48 PM
Noah - have you at all gotten the sense that the brokers are messing with the listing statuses of their properties at Streeteasy in order to manipulate the inventory #s?
Posted by anonymous | August 14, 2008 6:41 AM
anon - No, I dont think they are doing it to manipulate inventory, that would involve some collective thought. I think they do it for marketing purposes or because their sellers make them do it.
Posted by Noah | August 14, 2008 8:39 AM