Thursday, April 10, 2008

IMF Weighs In on Pending Global Credit Crunch - It is Not Pretty!

The plot thickens and gets gloomier around the consequences and impacts of the sub-prime mortgage fiasco. The International Monetary Fund has issued a new “Global Financial Stability Report” that says the fall out is “widening and deepening” as it spreads geographically and into corporate debt markets.

Now the financial institutions and security market firms are said to be coming under “considerable stress” caused a weakening of their balance sheets, the deleveraging process due to falling asset prices and the overall weakening of global growth…particularly in the States.

There is a quickening curtailment of credit that may start to impact normal business operations as banks cut back and try to raise capital. Central banks in Canada, the States and Europe are pumping cash into the system to provide liquidity and some semblance of short term stability.

The question remains about how much more money will be required to bolster the bungling and booga-booga economics of the Masters of the Universe types? How big and damaging will the bank’s asset write down actually be and how quickly will it happen – with what global economic consequences?

The system has been into denial for months but the vultures have come home to roost and with a vengeance. The impact is now being felt where 1 home in 5 in Detroit is under foreclosure. U.S Housing prices have dropped for the 9th consecutive month and last month alone a whopping 80,000 jobs were lost in the States...and as Karen Carpenter would say…”We’ve only just begun.” Former U.S. Fed Chair Alan Greenspan has said the States is already in a recession…too bad the current crop in charge can’t be that honest.

Those numbers are impressive and startling but they are nothing compared to the galactic calculations that are happening at the macro levels. Since August last year banks and security firms have written down $232 billion ($232,000,000,000.00) in assets and credit losses. The IMF predicted in February this total would reach $600 billion ($600,000,000,000.00). Two months later in April the IMF is saying the losses and write downs will be one trillion…$1,000,000,000,000.00. Obviously the worst is yet to come and indications are the biggest hump that will the system will have to get over will be in full force in the fall of 2008 and resonate for many quarters afterwards.

Governments are going to be called on to bail out these bozos who love to boast about how much brighter they are than the public service bunch who the like to look down their noses at. The lack of proper oversight by the regulatory authorities in government, their agencies, boards and commissions is a sad consequence of letting-the-market-decide-everything school of far right governing philosophies so “popular’ as of late.

Now we will likely see the reverse reaction and a tendency to over regulate and what I like to call the hardening of the Auditors. We will see a tendency to want to micro-manage and not regulate all in the cause of consumer protection and guarding the value for the taxpayer dollar. Business leaders better start taking the concept of social responsibility and social license to operate concept to heart as core values and not just public relations exercises if they don’t want to find themselves in personal lines of fire from a growing wave of fiercely angry citizens.

There is always lots of blame to go around history repeats itself where we see corruption and cons fueled by greed and abetted by a failure to properly perform public duties. The other truth seems to be every time history repeats itself the price goes up as do the consequences.