Derivatives are debts and bets of all shapes and sizes, esp. on interest rates, bonds, mortgage-backed securities, and other fixed instruments. They were the epicenter of the financial earthquake that shook the world last year. They triggered the demise of Bear Stearns, Lehman Brothers, AIG and others. And they're still causing aftershocks as evidenced by Dubai last week.
So you would think that steps would have been taken to reduce their threat to the US banking system. No way....Despite a brief reduction in derivatives outstanding in last year's 3rd quarter, US commercial banks now hold an eye popping 203.5 TRILLION in derivatives, a new all time high.
A whopping 97% of all US bank held derivatives are concentrated in the hands of just FIVE institutions: JPMorgan Chase, Goldman Sachs, Bank of America, Citibank and Wells Fargo.
Globally, the monster is 3 times larger than the 203.5 TRILLION held by US banks.
Showing posts with label BANKS. Show all posts
Showing posts with label BANKS. Show all posts
Wednesday, December 2, 2009
Tuesday, October 6, 2009
The Perfect Storm--5 year ARMS
In 2008, the financial markets were shaken by bad loans, foreclosures and the resulting fall in real estate prices. The bubble burst. Prices are now starting to stabilize in the housing market. Now that doesn't mean a 300K home will sell right now because most of the sales in real estate are in the under 220K range. Problems still exist.
But soon we will enter the "Eye of the Storm" where things are better. But a "Perfect Storm", the backside of the hurricane, awaits us in the future. This could be really bad for your home value, the ability to sell, and your portfolio.
Let me illustrate: The peak of the Greenville, SC real estate market was in 2006 and 2007. Those years were the #1 and # 2 all time record in total units sold in the Greenville area. The ARMS (Adjustable Rate Mortgages) issued in these years are the problem.
The 2006 2 & 3 yr. ARMS have mostly been absorbed. The 2007 2 yr ARMS again are mostly absorbed. The 2007 3 year ARMS will work through the system in 2010. BUT The total of 2 and 3 yr ARMS from the 2006-2007 record sales years are dwarfed by the # of 5 yr ARMS issued in those two years. Which means---that in 2011 and 2012 these ARMS are going to reset and people will need to refinance those mortgages. The problem: 48% of those homes are "upside down" right now (They owe more than their homes are worth) And they are predicting that 75% of these mortgages will be upside down in 2011. The market will once again become flooded with foreclosures and short sales---home prices are going to plummet, banks and financial institutions are going to be in major trouble! Can our government bail out the banks and financial institutions again?
The good news is that for a period of time estimated to begin in April of 2010, the market will improve (the eye of the storm), but sometime in late 2011 the storm will hit.
This may be a case for deflation....rather than inflation. I'm still holding to inflation in 2011. We'll see and adjust. All this has major ramifications on your portfolio!
But soon we will enter the "Eye of the Storm" where things are better. But a "Perfect Storm", the backside of the hurricane, awaits us in the future. This could be really bad for your home value, the ability to sell, and your portfolio.
Let me illustrate: The peak of the Greenville, SC real estate market was in 2006 and 2007. Those years were the #1 and # 2 all time record in total units sold in the Greenville area. The ARMS (Adjustable Rate Mortgages) issued in these years are the problem.
The 2006 2 & 3 yr. ARMS have mostly been absorbed. The 2007 2 yr ARMS again are mostly absorbed. The 2007 3 year ARMS will work through the system in 2010. BUT The total of 2 and 3 yr ARMS from the 2006-2007 record sales years are dwarfed by the # of 5 yr ARMS issued in those two years. Which means---that in 2011 and 2012 these ARMS are going to reset and people will need to refinance those mortgages. The problem: 48% of those homes are "upside down" right now (They owe more than their homes are worth) And they are predicting that 75% of these mortgages will be upside down in 2011. The market will once again become flooded with foreclosures and short sales---home prices are going to plummet, banks and financial institutions are going to be in major trouble! Can our government bail out the banks and financial institutions again?
The good news is that for a period of time estimated to begin in April of 2010, the market will improve (the eye of the storm), but sometime in late 2011 the storm will hit.
This may be a case for deflation....rather than inflation. I'm still holding to inflation in 2011. We'll see and adjust. All this has major ramifications on your portfolio!
Thursday, September 17, 2009
BANKS
The economy is improving, but the banking system is facing the "Alt-A" bomb...
Have you noticed how every Friday night (or weekend), regulators announce how some more banks have failed? Here's the last two weeks…
http://tinyurl.com/kqpahp
http://tinyurl.com/mbygk5
Obviously, regulators are trying to bury this bad news during the weekend, when most media sources aren't paying attention. But isn't it almost over? Well, according to this article, we now have over 400 banks on the watch list...
http://tinyurl.com/lpu6oy
Now, if you read the article, they do say that FDIC is well capitalized (right!) and the improving economy will help. But you'll notice that they aren't talking about something called "Alt-A".
It's what the mortgage industry calls the "option ARM" loans. You know the type, it's where you can pay a lot less than normal in the first few years, and then the loan turns into something more normal.
The sub-prime loans brought the banking system to it's knees. But the Alt-A issue is bigger, AND a big percentage of the homes affected are underwater. These loans will be coming due starting next year in a big way. The impact of defaults on these loans on an already shaky industry may be devastating.
Here's the article - you need to read it. It's short and sweet.
http://tinyurl.com/ku6mp4
!
Have you noticed how every Friday night (or weekend), regulators announce how some more banks have failed? Here's the last two weeks…
http://tinyurl.com/kqpahp
http://tinyurl.com/mbygk5
Obviously, regulators are trying to bury this bad news during the weekend, when most media sources aren't paying attention. But isn't it almost over? Well, according to this article, we now have over 400 banks on the watch list...
http://tinyurl.com/lpu6oy
Now, if you read the article, they do say that FDIC is well capitalized (right!) and the improving economy will help. But you'll notice that they aren't talking about something called "Alt-A".
It's what the mortgage industry calls the "option ARM" loans. You know the type, it's where you can pay a lot less than normal in the first few years, and then the loan turns into something more normal.
The sub-prime loans brought the banking system to it's knees. But the Alt-A issue is bigger, AND a big percentage of the homes affected are underwater. These loans will be coming due starting next year in a big way. The impact of defaults on these loans on an already shaky industry may be devastating.
Here's the article - you need to read it. It's short and sweet.
http://tinyurl.com/ku6mp4
!
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