Independent UK: A financial crisis that began in the US is coming to a home near you

A financial crisis that began in the US is coming to a home near you
As American banks admit the billion-dollar scale of their losses, Bank of England Governor warns that the worst is still to come in Britain

By Sean O'Grady, Economics Editor
Published: 07 November 2007


No one knows where the bodies are buried. Indeed, no one is quite sure exactly how many bodies there are. But they are out there, and there are plenty of them: underperforming loans, worthless securities and overvalued assets, all safely buried well away from the banks' balance sheets. Buried – but not quite dead.

Increasingly they are surfacing, and these financial zombies are every bit as frightening as any you'll encounter in a horror flick. No less terrifying are the other ghouls haunting the global economy: oil at $97 (£46)a barrel; the price of commodities from copper to wheat at historic highs and a White House seemingly intent on scaring everyone witless with the prospect of a fresh conflagration in the Middle East.

The Governor of the Bank of England has been spooked already, telling us yesterday that: "I think most people expect that we have several more months to get through before the banks reveal all the losses that have occurred... There is always, in a period like this, the possibility that a shock from outside the UK, one from the world economy, might create further fragilities". The "fragilities" have been exposed in some of the world's biggest banks. Their bosses have been the biggest casualties, comforted only by compensation packages running into hundreds of millions of dollars – remarkable even by the standards of Wall Street.

Still, such numbers are trivial compared to the losses banks are beginning to reveal, mainly down to their enthusiasm to lend to the "sub-prime" market – people who should never have been granted mortgages in the first place. Now these unfortunates are seeing their low rates of interest run out, they are having to refix at far higher rates and are defaulting and pushing the American real estate market into a slump. Packaging up these loans and selling them on seemed a good idea at the time – it spread the risk and offered investors "superior returns". Not any more, though: at a guess, some $15bn of losses at Citigroup, even though the bank pitifully admits it isn't quite sure if that's the lot; perhaps $8bn at Merrill Lynch; thus far $4bn at UBS. There will be more. Much more. Despite assurances from the Chancellor about the strength of our institutions, the hunt is on for the next victim. Barclays? Alliance & Leicester? Royal Bank of Scotland? They could suffer from buying too many of these defaulting loans. Or, like the case of Northern Rock, they may be hit by the credit squeeze, as banks hoard cash to deal with any nasties that emerge. In these circumstances they won't lend to each other, are less willing to lend to the "sub-prime" market and mainstream borrowers – businesses and families – may also find it harder to arrange that overdraft or car loan. .....(more)

The complete piece is at: http://news.independent.co.uk/business/news/article3135372.ece

I love their tv commericials....

They all made a ton of money off of short term owners and their crappy inflating rates.

Let them choke on it now.

And let the real estate market tank. Why is everyone afraid of that? It's just adjusting to reality. Once it tanks it'll start moving up again if conditions permit.

Funny how everyone is a free-market capitalist until things get hard.

these over-valued piece of crap houses need to come DOWN IN PRICE - you are absolutely correct

the Fed can not continue to bailout the criminally corrupt financial sector; the US dollar will eventually become worthless.