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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerIt really is not all that shocking with financial firms like Citigroup (NYSE: C) hitting multi-year lows, US financial companies may need another $1 trillion in capital.
According to Reuters, "The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said."
Miller points out that US financial companies have $37 trillion dollars in debt outstanding.
What is not so clear is why things will get so much worse, why such a huge amount of capital will be required? LBO debt is substantial, but not to the extent that it would move the needle to $1 trillion. Many mortgage-backed securities have been sold off or hedged.
The real issue now would appear to be consumer debt. If unemployment rises above 8% and credit become harder to come by, the defaults on car loans, mortgages, and credit cards could rise into the hundreds of billions of dollars. It is important to remember that there is toxic paper attached to these pools of loans as well.
The credit crisis started with complex derivatives. It may end with the poverty of the average man on the street.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
11-20-2008 @ 9:36AM
Virgil Bierschwale said...
Folks, you can continue throwing money off that cliff all day long and it won't do one bit of good because the banks will lend money when they sense that people no longer need to borrow their money.
They will never lend to anybody that NEEDS to borrow.
If you want to get the banks to lending money again, put the American consumer back to work by bringing their jobs home.
They have so much pent up frustration that they will be buying all kinds of items including American cars and our retailers, manufacturers and raw material producers will benefit many times over which is much better then seeing you continuing to throw our money away in never never land.
Virgil
http://www.KeepAmericaAtWork.com