Wednesday, August 1, 2007

Subprime could create global crisis, economist says

WASHINGTON (Market Watch) -- The problems in the U.S. subprime mortgage market could spiral out of control into a global financial crisis, economist
Mark Zandi said Thursday.

With a "high level of angst" in the financial markets about who will take the losses from more than $1 trillion in risky mortgages, we could be just one hedge-fund collapse away from a global liquidity crisis, said Zandi, chief economist for Moody's

A global meltdown is not likely, but the risks are growing,
Zandi emphasized in a conference call with reporters following the release of a new study on subprime debt that concludes that the housing crisis could be deeper and last longer than investors now believe.
Read the latest data on home sales.

And it could spread. "Mounting mortgage delinquencies and defaults now pose the most serious threat to the global financial system and economy," Zandi said in his report.

"If there is a fault line in the global financial system, it runs
through the U.S. housing and mortgage markets," he said.

Zandi's comments came as U.S. financial markets reeled from a growing credit crunch, centered not in the subprime arena, but in the leveraged corporate debt market.

After Bear Stearns was forced to write off the value of two large hedge funds that had invested heavily in securities backed by subprime debt, it could take just one more "Bear-like event" for the financial system to freeze up,

"If there's another major hedge fund that does stumble, that could elicit a crisis of confidence and a global shock," Zandi said. The potential "is quite high," he said. He gave it a one-in-five chance.

Zandi said global financial conditions have been supported by
strong growth and substantial liquidity, supercharged by "unprecedented risk tolerance." But that's changing. Global liquidity is drying up, with central banks tightening. And risk is being re-priced.

"The credit window is now closed," wrote strategist Barry
Ritholtz in his blog.

The world is flat…economically speaking.
As more countries have been brought into cooperation with the world economy it has progressively flattened until we find ourselves interconnected and interdependent. That is why, in a nut shell, we will all suffer from a major economic event like the one that is now brewing in the U.S. housing market. Sure some of us will zig or zag at the right moment and manage to land in the gravy but the majority won’t. The result will surely be changes to everyone’s lifestyles regardless of current or future financial status.

I predict another result will be anger amongst the masses. Remember the guy in Oregon who destroyed his house before surrendering it to the bank? ( Man uses pigs to trash own house )

That kind of anger.

Only this time it may be blindly aimed at anything or anyone who represents the source of their pain. Imagine that kind of anger displayed by millions of economically ruined people world wide…
Not a pretty picture.


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