GONZO Journalist Foretold American Implosion

POSTED BY: out2theblack
UPDATED: Sunday, July 20, 2025 01:59
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OUT2THEBLACK

Thursday, October 2, 2008 8:14 PM

Things that make you go hmmm...



http://911review.org/Wiki/BigDarknessSoonCome.shtml

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SIGNYM

Thursday, October 2, 2008 8:36 PM

That was NOTHING compared to this Feb 5 article. I cut out a LOT of detail, but this guy was very specific and very on-target.

The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster
Nouriel Roubini | Feb 5, 2008

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Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.

To understand the Fed actions one has to realize that there is now a rising probability of a “catastrophic” financial and economic outcome... The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.

...To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about....

Here are the twelve steps or stages of a scenario of systemic financial meltdown associated with this severe economic recession…


First, this is the worst housing recession in US history and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use “jingle mail” (i.e. default, put the home keys in an envelope and send it to their mortgage bank)....

Second, losses for the financial system from the subprime disaster are now estimated to be as high as $250 to $300 billion. But the financial losses will not be only in subprime mortgages and the related RMBS and CDOs. They are now spreading to near prime and prime mortgages as the same reckless lending practices in subprime (no down-payment, no verification of income, jobs and assets (i.e. NINJA or LIAR loans), interest rate only, negative amortization, teaser rates, etc.) were occurring across the entire spectrum of mortgages; about 60% of all mortgage origination since 2005 through 2007 had these reckless and toxic features....

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So this is a generalized mortgage crisis and meltdown, not just a subprime one. ...

Third, the recession will lead – as it is already doing – to a sharp increase in defaults on other forms of unsecured consumer debt credit cards, auto loans, student loans....

Fourth, while there is serious uncertainty about the losses that monolines will undertake on their insurance of RMBS, CDO and other toxic ABS products, it is now clear that such losses are much higher than the $10-15 billion rescue package that regulators are trying to patch up...

Fifth, the commercial real estate loan market will soon enter into a meltdown similar to the subprime one. Lending practices in commercial real estate were as reckless as those in residential real estate....

Sixth, it is possible that some large regional or even national bank that is very exposed to mortgages, residential and commercial, will go bankrupt. Thus some big banks may join the 200 plus subprime lenders that have gone bankrupt. This, like in the case of Northern Rock, will lead to depositors’ panic and concerns about deposit insurance.

Seventh, the banks losses on their portfolio of leveraged loans are already large and growing. The ability of financial institutions to syndicate and securitize their leveraged loans – a good chunk of which were issued to finance very risky and reckless LBOs – is now at serious

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