Wachovia

TJ_98370

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Wachovia Credit-Losses Reach $1.7 Billion in October (Update4)

Wachovia Corp., the fourth-biggest U.S. bank, said mortgage-related losses total $1.7 billion so far this quarter, more than the lender reported for the previous three months.....
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rose-colored-coolaid

TJ_98370 wrote:

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Wachovia Credit-Losses Reach $1.7 Billion in October (Update4)

Wachovia Corp., the fourth-biggest U.S. bank, said mortgage-related losses total $1.7 billion so far this quarter, more than the lender reported for the previous three months.....
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Has anyone else developed a strange tic from this collapse? Me, I yawn every time I hear another company has lost a few billion dollars.

I fear it would take a full blown derivatives collapse to fully rouse my attention now.

sniglet

rose-colored-coolaid wrote:

Has anyone else developed a strange tic from this collapse? Me, I yawn every time I hear another company has lost a few billion dollars.

Yes, there has been lots of bad news, but the full impact has barely been felt. I find it incredible to read national surveys that still show most people expect their homes to appreciate next year!

The DOW is still above 13,000 and many of the biggest financial stocks have barely taken a beating. Goldman Sachs, for example, is above $200 a share. Even Bear Stearns is just a hair under $100 a share, despite their hedge fund disaster this summer. Even Citigroup hasn't hit the lows it saw in 2003 (although it's getting close), and yet Citi is fighting for it's actual survival today (which it wasn't close to doing in 2003).

I get the feeling that most investors just haven't really absorbed the depth of what is happening with the credit implosion. A lot of people still think this is just a short hiccup before the high-risk credit markets start moving again. Even those who do feel that there is a real crisis unfolding think that the government will step in and save everyone eventually, so there is no need to worry.

It's as if the economy was in a serious car crash with a big hunk of metal protruding through the abdomen, yet the pain hasn't kicked in yet. There the economy sits, staring at the foreign object sticking out of it's body, with blood all over it's hands, but the pain and gravity of the situation hasn't kicked in yet.

Heck, all you have to do is head on over to Raincity to see people chatting perkily about staging homes (as if that will help people sell over-priced hovels when no one can get financing) to see that most people live in an alternate universe and won't notice the asteroid bearing down on the planet until the shock waves from the impact throw them off their feet.

TJ_98370

sniglet-

I agree. J6P is either purposely blissfully ignorant or quivering in quiet desperation.

Actually, it's probably an inability to relate to these events at a level meaningful to the individual.

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So what if Countrywide implodes. I'm still employed, I've got my cable TV, a full stomach, and the Suburban still has half a tank. What's the problem?

rose-colored-coolaid

I get what it means. It's a big deal. I yawn because it's becoming so common place.

TJ_98370

RCC

I understand your point. However, it is a bit surprising to me how widespread the problem is. Some are saying that this is just the tip of the iceberg. I guess we will find out.

Good article on derivatives.

rose-colored-coolaid

Absolutely this is just the tip.

I'm convinced that every company release write-offs today will probably have again as much to write-off sometime in Q1 2008.

And it's not just that. Above I referenced the derivatives market as being what I'm concerned about, and that's still true. The total US real estate market has a value of what - $20 trillion? We're seeing write-offs today of billions based on part of that going bad. I don't have any real figures, but total announced losses at the corporate level (forget calculating what individuals are losing) are probably somewhere in the $20 billion to $50 billion range.

But according to BIS (Bank for International Settlements), the global derivatives market had $370 trillion in outstanding loans as of the middle of 2006 and growing rapidly! Here's a quote from that report.

The volumes outstanding of over-the-counter derivatives expanded at a brisk pace in the first half of 2006. Notional amounts of all types of OTC contracts stood at $370 trillion at the end of June, 24% higher than six months before (Table 1).1 Growth was particularly strong in the credit segment, where the notional amounts of outstanding credit default swaps (CDS) increased by 46%. Rapid growth was also recorded in other market segments. Open positions in interest rate derivatives rose by 24%, while those in FX contracts expanded by 22%. Equity and commodity contracts grew at 17% and 18%, respectively. Gross market values, which measure the cost of replacing all existing contracts and thus represent a better measure of market risk at a given point in time than notional amounts, increased by 3% to $10 trillion at the end of June 2006.

So, global derivatives are 20x larger than US real estate (US real estate being a segment of that total market). If the contagion spreads to this market, then you'll start seeing 20x the write-offs. $1.7 billion sounds bad, until someone has to write-off $34 billion.

TJ_98370

Yes - but Mr. Bernanke and Mr. Paulson said the problem was contained. :?

I've read in several different places that the stock market follows the credit market, so watch those CDS's right? I think we are in for some "interesting" times in the near future.

biliruben

"A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him".
-- John Maynard Keynes