Hot Links: Credit Crunch–Banks Lose $30 Billion

Kurt Brouwer September 17th, 2007

Here are three stories plus a bonus link on the worldwide impact of the credit crunch initiated by the subprime lending mess:

  • The Times of London reports that banks worldwide are taking about $30 billion in losses…
    • ‘THE world’s investment banks are to reveal a $30 billion (£14.9 billion) hit from bad debts as they unveil results that give the first real insight into the impact of the debt crisis.City analysts predict the banks will have to write down as much as 10% of the $300 billion of leveraged loans currently agreed but not yet syndicated when they report third-quarter results to the market…’
  • The Wall Street Journal reports that accounts at troubled U.K. lender Northern Rock will be guaranteed…

    • ‘The British government will guarantee all existing deposits at troubled bank Northern Rock PLC, U.K. Chancellor of the Exchequer Alistair Darling said Monday.

      Mr. Darling said that the government and Bank of England would guarantee deposits and customers’ savings were “safe and secure” following a meeting with U.S. Treasury Secretary Henry Paulson…’

  • The Wall Street Journal reports that Countrywide, the nation’s largest mortgage lender, is still seeking more outside financing…
    • ‘In the latest move to shore up its finances, Countrywide Financial Corp., the nation’s No. 1 mortgage company, said it obtained an additional $12 billion in secured financing, sending its stock higher by 14%…’
  • Fundmasteryblog.com posts on PIMCO’s decision to launch a new mutual fund to invest in distressed mortgage securities…
    • ‘The folks at PIMCO see an opportunity in the beaten-down market for mortgage-backed bonds…’

In these four links, we see the whole spectrum of how the financial markets react to trouble. First, they cause it. That is, the subprime lending mess was created by innovative financial thinkers who continually develop new ways to add value. Next, the first phase often goes too far and the new innovation causes lots of problems. Third, losses, turmoil and trouble ensue. Finally, other innovative financial minds determine ways to make lemonade out of lemons and so on and so on.

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