Kyle Bass, one of the sharpest investment minds in the world, gives an interview on the worldwide debt crisis. Mr. Bass expects Japan, one of the most indebted nations in the world, to be forced into debt restructuring. In Europe, Kyle Bass expects bankrupt governments to resort to the nuclear option in government financing – money printing on a grand scale. The only question with Europe is “do they print before they default or after they default?.” Bass sees the United States inexorable moving into the same debt trap that Japan and Europe have fallen into.
The consensus view is that housing is near a bottom. One astute analyst makes a compelling case for a continued decline in housing values. The implications of further large declines in housing values have decidedly negative implication for both the banking industry and the economy.
Housing values continue to drop despite historic lows in mortgage rates. The “best execution” rate for a 30 year fixed rate mortgage is at an all time low of 3.875%. The best rate is reserved for those borrowers with excellent credit, good loan to value and the necessary amount of verifiable income. Many home owners are weary of refinancing despite the low rates, perhaps due to the rather significant costs involved in a refinance. Other homeowners are unable to meet the required credit and/or income standards or do not have sufficient equity in their home to refinance.
Depositors are withdrawing cash from U.S. branches of foreign owned banks at a record level. The cash is fleeing to U.S. banks which have seen total deposits rise to all time record highs (see $1.2 Trillion of Nervous Money Floods Into U.S. Banking System). Foreign owned bank branches in the U.S. lost a record $291 billion in deposits since May. With many European banks facing potential collapse, the run on the banks will likely increase.
The New York Times reports that has not been “one civil trial in a major case directly related to the biggest economic fiasco of our time: the financial crisis.”
Niall Ferguson, financial historian, warns that America is in denial about our financial future. According to Ferguson, what made the Great Depression of the 1930s truly horrific was triggered by the European banking crisis of 1931.
Europe is “heading for a collapse” and there’s not much anyone can do about it.
Mortgage obligations of homeowners as a percentage of disposable income remains high, but has declined to 2003 levels, due primarily to lower interest rates on mortgages.
The Atlantic explains why “big banks keep getting away with breaking the law.”
The Dodd-Frank Act does not allow banks to continue to use the major credit rating agencies to assess the safety and credit rating of securities held by banks. Have the Feds really figured out a better way to assess risk? In the aftermath of the financial crash of 2008, it has become increasing difficult to call any debt “risk-less”.
That’s it for today – have a great evening!