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World Crisis scenarios for the 21st century – Worldwide economic depression.(update 5)

Posted by Adrian on August 15, 2007

World Crisis scenarios for the 21st century – Worldwide economic depression.(update 5)

World markets are in dire trouble as the liquidity crisis widens. The worldwide banking sector is under increasing strain to avoid lending to other institutions, and/or the taking on of debt capital due to the US subprime mortgage collapse. Despite the main world banks – European Central Bank, Bank Of Japan, Reserve Bank of Australia and The US Federal Reserve injecting vast amounts of capital into the world banking sector over the last week. It appears to have not ‘calmed’ the fears of investors.

Asian markets have opened lower again on the concerns of a severe credit market crunch, two Japanese banks have been effected by it’s connection to the subprime mortgage market, more specifically the mortgage backed securities that included subprime loans that the bank held and sold, at a loss:

“Mitsubishi UFJ had unrealized losses of about 5 billion yen ($42.6 million) on investments related to U.S. subprime loans as of the end of July, the lender said. Sumitomo Mitsui said it recorded “several billion yen” of losses in the three months to June 30, after selling about 350 billion yen in U.S. mortgage- backed securities, including some backed by subprime loans”

Australian investment bank Macquarie Bank Ltd:

“Macquarie Bank Ltd., Australia’s biggest securities company, dropped 4.1 percent to A$67.39. Its shares have dropped 18 percent since its Macquarie Fortress Investments Ltd. unit, which had $873 million in two high-yielding funds, said on July 31 it was forced to sell assets to avoid breaching loan agreements.” Bloomberg

Now the broader Australian lender/broker mortgage market could be effected by the credit and liquidity crisis with stemmed from the US subprime market deterioration:

Commonwealth Bank chief executive Ralph Norris confirmed fears raised by Aussie Home Loans chief executive John Symond that the credit crisis ocurring in the US could force domestic interest rates higher. But Mr Norris said lending strategies differed between lenders and the methods used by non-banks to find money to lend put them at greater risk than larger, traditional banks. ‘There will at some stage be an increase in rates,’ Mr Norris said.”

Australian home loan lender (non bank) RAMS Home loans:

“Yesterday the Australian mortgage provider became the latest casualty in the far-reaching US credit crisis, sparked by defaults in low-end US mortgages. The stock, which had been wallowing, fell a further 19.4 per cent to $1.41 — down 45 per cent from the float offer price. Further evidence of contagion in the Australian market from the US subprime mortgage crisis spooked investors, sending the benchmark S&P/ASX 200 Index down 0.8 per cent despite the Reserve Bank pouring $2.61 billion into the financial system to keep it running smoothly. The amount was larger than the RBA’s daily average of about $1.9 billion but much smaller than last week’s one-off $4.95 billion injection.”

“Credit Suisse analyst Alex Chau said RAMS had been hard hit by the US credit market woes because its funding was subject to regular rollovers. ‘Normally when you securitise a mortgage away, its duration is four to five years, which more appropriately matches the duration of the asset,’ he said.

“This type of facility, however, is rolled over on a 30-day basis. So it’s … much more exposed to liquidity crunches.”

“Of that amount, $6.17 billion is funded with “extendable commercial paper” — short-to-medium-term funding from US debt capital markets.” Business Day – The Age


Info on “commercial paper” – Investpedia


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