National Australia Bank Writes Off 90% of Its U.S. AAA Rated Debt
July 26th, 2008Will the other banks—holding this toxic waste—try to simply ignore this event?
Via: Business Spectator:
The National Australia Bank’s decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done. It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.
We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory. This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.
It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble. NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable.
While global banks have been writing down their balance sheet assets, few have tackled their conduit exposures which are off balance sheet but to which they are ultimately liable.
This morning at around 6am I wrote that we had been experiencing a ‘dead cat bounce’. I had no idea that NAB would trigger the downturn and confirm what I had written. And of course Wall Street will receive a deep shock when it wakes up.
More: Bad Debt Bombshell from National Australia Bank
What is there to say except, “And so the carnage continues”? I’m amazed the PPT has been able to keep the stock-market propped up the way they have. But for how much longer can they keep all the chainsaws in the air as they juggle away?
I love this bit:
“There was no way anyone could have predicted the dire state of the US housing market.”
Hmmm…and the sad part is, most people would agree.
Hmmm…and the sad part is, most people would agree.
That’s the nutty part! My dad, THE most consistently uninformed person I know, is scratching his bald head on this one. Do you think that he remembers me telling him to get out at the top two years ago? HA.
“They’re not making any more, Kev.”
Ayep.
He moved from Milwaukee to Southern California 50 years ago, “Because I knew I wouldn’t freeze to death in California,” he likes to say, over and over.
The horror of his Catholic upbringing and the cold climate in Wisconsin makes him think California is heaven on earth, even as it slips into collapse.
@Kevin:
Oh wow. I think you may remember my e-mail about how I’m glad I’m living in Milwaukee and not southern California. In Socal they’ve got too many people and not enough local water, whereas here in Milwaukee we’re right next to Lake Michigan, and the Milwaukee area is not insanely overcrowded, unlike the cities of Socal.
Kevin, well my dad regards himself as well informed because he reads the local Rupert Murdoch/Newscorp-owned best selling daily paper and watches the ‘news’ (a category in which he includes those tabloid ‘current affairs’ shows but sometimes even SBS world news, because ‘they tell you everything’) in widescreen and surround sound on his 142cm rear proj TV (I guess that way it’s more realistic?!)
Anyway, he assures me that this recession (‘it’s only going to be very temporary’) is going to be nowhere near as bad as the last one we had in Australia! I guess he’s opened his eyes a bit – only 2 or 3 years ago he was publicly deriding me for being a pessimist by actually uttering the words saying that we’re entering the shit, so I guess he’s getting somewhere). I ask him why he thinks that’s the case and he can’t give an answer . Obviously the talking heads and stories in the papers aren’t giving us the whole story, so seeing as we haven’t officially been told that things are hitting the fan at full speed, I guess in his mind everything’s gonna be ok soon.
I shouldn’t be surprised – he blames this coming ‘recession’ on the fact that liberal, who would’ve steered Australia out a recession quickly, was ‘voted’ out and it’s just labour stuffing everything up again. When I remind him that’s this shit’s happening all over the world and not just in Australia, once again there’s no comeback. I guess he forgot what the news person said about that one.
He’s also spent most of the last 5 or 6 years telling me to get an equity loan to buy a few investment properties (and he knows I can barely service the loan I have at the moment, but when it comes to property, it doesn’t matter how much you get into debt or how it affects the rest of your life) and after that, any left over money should be put into superannuation, becuase ‘super can’t be touched!’ Ha ha! Well, in a way I guess he’s right – it can’t be touched by you when you need it, but the fat cats can take as much as they want to get themselves out of the shit!
I shouldn’t single him out, though… I’d say 99% of people I come into contact with still have their heads up their butts.
Just the other day someone I know (a builder, who doesn’t even realise in which direction the building industry’s headed and is also a widescreen-format news disciple to boot) told me how the price of oil is on its way back down to ‘normal’ because ‘people overseas refuse to buy it when it’s too high’ so therefore it can’t go any higher anymore, and how petrol prices will be dropping back to normal, and after that everything else will follow. He saw this on prime time TV news, and according to what the oracle told him, that whole return to normal thing should’ve happened almost a week ago. He refuses to discuss it now. Instead he’d rather talk about how he’s set for life and about to retire at age 45 because he has 5 investment properties – which are all owned by the bank, along with his $500k residence, over $200k worth of cars, $40k Harley and silver and gold credit cards. You see, he’s ‘negatively geared’ on advice of his accountant and that’s why according to him, he’s now ‘somewhere’ and people who aren’t like him will never get anywhere!
BTW, guess which bank owns his life???
Well, I guess they’re not alone: “9 out of 10 Australians do not know that the meltdown in the stockmarket will carve chunks from their superannuation, a survey has found.” (http://www.news.com.au/heraldsun/story/0,21985,23960287-2862,00.html)
Wilful ignorance as a way of life, especially when it’s pushed onto others, or others are affected by it, really gets to me. (In case you all didn’t realise!)
*** vent over***
BTW, the ‘they’re not making any more’ comment in regards to real estate is probably the most over-used piece of uninformed financial advice I’ve ever heard that it makes my skin crawl! So at least he’s not the only one to say it!
Wilful ignorance as a way of life, especially when it’s pushed onto others, or others are affected by it, really gets to me. (In case you all didn’t realise!)
I hear that! Of course, it has to be pushed onto other people, otherwise it wouldn’t be truly sick and wrong, right? 😀 Kind of like my brother who is always trying to browbeat into buying more and bigger stuff that I neither want nor need. Or how moving out of my current apartment is something I had better not do unless I absolutely need to do so, because it has been made clear to me that my older brother will insist on moving into an apartment that I wouldn’t really be able to afford in the long haul, because the new apartment would have to be good enough for his twisted Baby-Boomer ego above all else. (I’m not rich and I never learned how to drive an automobile.) Maybe he thinks that tying an albatross around my neck would “force” me to get a “real job” in an office cubicle? Ha-ha! So nice that he has such a rich fantasy life! If anybody was even remotely interested in hiring me for such a job, doesn’t he think I would have one by now???? Sorry, my bad, that would be reality, and that just gets in the way of ego-fanstasies. Can’t have that! (You see, I’m supposed to “become more entrepeneurial” about getting an office job, only I’m still trying to figure out what exactly that even means.)
BTW, il, here’s your news-story converted into a hyperlink. Copying URLs and then pasting them into your browser address window ain’t exactly a taxing endeavor (unlike looking for jobs for which nobody wants to hire you), but hyperlinks have made people so lazy that they won’t read any links you post up online unless you hyperlink them.
I can’t even imagine what it means for a bank in Australia to be writing down this much of its U.S. purchased debt. Absolutely bizarre, considering its AAA rated debt. But then again, everybody, including the rating agencies, at one time, loved this debt. Yawn.
Wall Street, now who is that? When one can define that entity – well it will all be over already. There is no reality left there. To say that you have investments on Wall Street is like stuffing your bra with kleenex to give the appearance that you have big boobs; or stuffing a sock in your shorts thinking this will make it look like you have a big dick.
I had my “nervous breakdown” re Wall Street about this time last year. Ever so thankful that I have shunned, each and every time, the advice of my father’s former stock broker, who at this time last year, wanted to sell me stocks in financials – banks. “It’s a good solid bank. They invest in local mortgages.” Well hee haw.
Kevins post on food, guns, seeds, water, etc. sent me into shock but oh well. I’m on the other side now. Wondering whether what I’ve done is enough. But so far the plan is holding steady.
@Loveandlight – your brother (I’ve been reading your posts about him for a long time now) sounds like he needs a major enema. Cripe, first he wants to manage your investments, now he wants you to move to a place that he likes (not sure what your post meant here) but sheesh. Sounds like he needs to get a life that doesn’t include a role whereby he believes its his gig to manage you.
Sorry, I just had to say that. I have no idea of your circumstances. But you seem articulate, you are employed, and if you are comfortable with your life, well. There you have it. I for one would put a big nix on takin on any increased financial commitments at this time. Unless absolutely necessary. Nope. Nope. and Nope. Is there something wrong with where you live now that you must move? That would be the only thing I would do myself. Sometimes living situations can get pretty hairy as a renter, as I am one, and have been for, uh, 30 some freaking years.
I know you didn’t ask for advice but there you go.
@Eileen:
Not sure if you’ll read this because this post is off the home page now, but what I meant was that the place I moved in to would have to gratify his ego-needs, which in his case generally means “more” and “bigger” and “more expensive”. If you want to understand his thinking, just imagine the state of mind that would be useful to coping with a catastrophic socio-economic collapse, and then imagine the extreme exact opposite of that. That’s my bro. This psychology article might also shed some light on the situation for you. (And add a generous sprinkling of Boomer narcissism to the diagnosis, too.) I realize I’m displaying terrible family-loyalty here, but sometimes I just have to vent.
Things have actually improved a lot over the years. Back when I was in my twenties, he took it for granted that it was absolute unquestionable prerogative to micro-manage my life to such a degree that he would dictate the music I listened to, the clothes I wore, the kind of articles I would write for the school paper where I went to college, what kind of job I was to get, when I would get it, how I would go about getting it…and that was still just the tip of the iceberg. And all this despite the fact that it was pretty clear I wasn’t having any of it. Had things not changed, some kind of lasting alienation between he and I would have been inevitable because he was really one of those people whose behavior towards you really gave you very little wiggle-room regarding how to deal with him. If you wanted to come away from interaction with him with so much as a shred of self-respect remaining intact, you eventually had to say “NO,” because I said so! No. No. No. No.” So I am pleased and grateful that things are not still that fucked up between he and I.
As for my current renting situation, the landlady moved to Florida and left her mentally-ill niece who lives in the building in charge of both the rental units and the jewelry store downstairs. Calling plumbers or electricians when things go wrong is something she simply isn’t going to do, so a situation where I would have to move out and do so quickly is conceivable. And the jewelry store isn’t doing so well these days because she pretty much spent the winter after the holidays sitting in her apartment chain-smoking cigarettes and blasting her stereo instead of minding the store (it’s a one-person operation these days, meaning no other employees, it’s just her). She didn’t start minding the store again until she was about to run out of money.
Keep in mind I’m a Myers-Briggs INFJ, and I’ve noticed that we INFJ types seem to have this karmic deal where we have to deal with more than the usual amount of very demented people as we go through life. So I mostly just try to take it in stride and occasionally vent about it in lengthy posts on Internet forums. (Sorry, Kevin.) 😀