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Economic Alert #4
The Calm Before The Storm
August 10, 2008
The Calm Before The Storm
August 10, 2008
People have apparently been convinced by the Federal Reserve Board’s and the Treasury Department’s Jedi Mind Tricks (see Alert 3b for more details). And the US economic slowdown has now spread worldwide. So the dollar is up, and gold and the Euro are down.
But everything is not OK. Since the bankruptcy of IndyMac in California on July 7, 8 mortgage units have closed and 3 more banks have gone into FDIC receivership. The sheer number of banks that have gone into FDIC receivership calls into question whether the FDIC will have sufficient money to pay depositors for future bankruptcies. The latest note from the International Risk Analyst website suggests that by this time next year more than 100 banks will fail - some of them at the top of the bank totem pole - with total assets of $800 billion.
Many homeowners who have prime or Alternative-A mortgages are delinquent on their payments, and another round of foreclosures is expected. General Motors posted another huge loss – and many analysts are wondering when GM will throw in the towel. Unemployment is the highest in four years.
Meanwhile, Bank of America, which now owns Countrywide Mortgage, tried to pull a fast one on the other banks: creating a “Bad Loan, Inc” subsidiary to transfer all of Countrywide’s bad loans and declaring it bankrupt – voila, no more debt! Bank of New York has put a stop to this game; it has is sued Countrywide for $2 billion, which may force the entirety of Countrywide into bankruptcy so that its many creditors can share in its $1.5 trillion in assets. If this happens, it will be a huge drain on the FDIC.
Moral of the stories above: find a bank that isn’t exposed to subprime and Alt-A mortgages. Alternatively, for long-term investments, buy gold or other precious metals. For large accounts for the short term, follow the dollar and Euro closely, and when it stabilizes move your funds into a Euro-based bank account.
References:
Vikas Bajaj, Housing Lenders Fear Bigger Wave of Loan Defaults
New York Times, August 4, 2008
New York Times, August 4, 2008
The Mortgage Lender Implod-O-Meter, http://ml-implode.com/
Instutional Risk Analyst, Is Countrywide Financial Headed for Bankruptcy?
August 6, 2008
August 6, 2008
FDIC Failed Bank List
http://www.fdic.gov/bank/individual/failed/banklist.html
http://www.fdic.gov/bank/individual/failed/banklist.html
Mike Shedlock, Countrywide Dogs Howling Over Bare Bones,
Wednesday, August 06, 2008, MISH'S Global Economic Trend Analysis
http://globaleconomicanalysis.blogspot.com/
Wednesday, August 06, 2008, MISH'S Global Economic Trend Analysis
http://globaleconomicanalysis.blogspot.com/
Standard Disclaimer: The information above, Bad Moon Rising Alerts, and the Bad Moon Rising Survival Guides do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.
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