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"U.S. could face $2 trillion lending shock: Goldman " ...LINK

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Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 03:54 AM
Original message
"U.S. could face $2 trillion lending shock: Goldman " ...LINK
http://news.yahoo.com/s/nm/20071116/bs_nm/economy_us_cr... ;_ylt=AmdbPeq1qnWP5YidnjwDn.WyBhIF??

U.S. could face $2 trillion lending shock: Goldman

"LONDON (Reuters) - The impact of the U.S. mortgage market crisis on the underlying economy could be "dramatic" as leveraged investors may need to scale back lending by up to $2 trillion, according to investment bank Goldman Sachs (GS.N)."

<snip>

"But unlike stock market losses, which are typically absorbed by "long-only" investors, this mortgage-related hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises. And leveraged investors react to losses by actively cutting back lending to keep capital ratios from falling -- A bank targeting a constant capital ratio of 10 percent, for example, would need to shrink its balance by $10 for every $1 in losses."

<snip>

"The macroeconomic consequences could be quite dramatic," Hatzius said in the note to clients. "If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion. "This is a large shock," he said, adding the number equates to 7 percent of total debt owed by U.S. non-financial sectors.

Hatzius said such a shock could produce a "substantial recession" if it occurred over one year, or a long period of sluggish growth if it occurred over two-to-four years."

******************

And this is what the next Democratic President will inherit. Another fine mess Bush Republicans have got us into.
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MADem Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 04:09 AM
Response to Original message
1. No home loans for YOU!! That'll be it, for awhile...! Move in with Mom!!
Or stay in that rental!

K and R...
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Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 11:47 AM
Response to Reply #1
2. The great unspoken outcome will be banks failing....
If credit capital used by Banks to lend dries up, there will be no way to sustain current banking obligations. Banks will be doing two things almost immediately --calling in every obligation they can(just like covering a margin call from your stock broker), and new loans will become non-existant regardless of the ability of borrowers to meet new credit standards.

The other unspoken outcome is that there are a boatload of financing commitments that lenders are on the hook to underwrite(because many projects have already been started in reliance upon them) which they will be unable to fulfill. THis will lead to lawsuits, and have a 'ripple effect' throughout the housing and commercial building industry.

And the debt held by banks today is worth less than at any time in the last 6 years because of the devaluation of the dollar.

If you are a banker today you probably should be dusting off your resume.
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Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 12:09 PM
Response to Original message
3. Goldman Sachs is making this public to cover their own behinds....
All their hands have been caught in the cookie jar. They will surely use this in the future to try and deflect criticism for their own actions that contributed to it.
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flashl Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 12:27 PM
Response to Reply #3
4. And, WE are suppose to believe THEM when they say they are not knee deep in subprime. n/t
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Reno.Muse Donating Member (307 posts) Send PM | Profile | Ignore Sun Nov-18-07 12:59 AM
Response to Reply #3
5. so true ... so many people gamed this financial sector ...too bad
It's too bad that most will get away with the scams they ran.
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Didereaux Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 04:13 AM
Response to Original message
6. your comment is the core problem...
The next administration is going to get handed this mess. I have not seen any analysts or commentators of note who have even ventured a method of dealing with it, short of simply riding it out. I have however read more than a couple who stated flatly that the next administration would be a single term one, based solely on bad economy; Even Rove has hinted that this is the correct strategy fro the Repugnants to follow. Let the Democrats take this one, blame the economy on them (Americans being the stupid ignorant jackasses that we are) will believe it and sweep the Repugnants back into power with large majorities.

Like or loathe that sonofabitch he knows the American public and plays them like a cheap tin whistle. All we can do is follow the flow, get our candidate elected, and hope they are both smart enough, AND have the contacts to draft the best and brightest into the cabinet positions. Then we have to hunker down, stave off the Rovian attacks for four years and convince the rest of America to stay with the Dems one more hitch and give them the opportunity to finish rewiring the house.

A tough row to hoe!

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upi402 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 04:17 AM
Response to Original message
7. Republican media will blame the Dem who inherits this
That's why we need Kucinich. He'll undo the Clinton Telecomunications Act that handed over our public airwaves and public rights of way - to the corporate media barons. The other candidates in the lead will not. Especially Rupert's gal Hillary.
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MadHound Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 06:16 AM
Response to Original message
8. This isn't just a Bushco mess
Though he and his buddies did indeed contribute mightily. No, this goes back into the Clinton administration and possibly beyond. The reason I say this is two-fold. First of all, the Glas Steagleman act was repealed under Clinton, which opened up a lot of territory for banks and lending institutions to work it, much of it close to a cliff edge. Second, Greenspan contributed to this also. When the tech boom was busting, he lowered interest rates like a mad man, thus giving all the free floating investment money another bubble to pump up, in the housing sector. Now we're reaping the rewards of a decade's worth of crony, corrupt, capitalism.
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BadgerLaw2010 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Nov-18-07 08:23 AM
Response to Original message
9. This really better be bailed out before it happens.
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