NightBlogger

Almost 600 of the about 20,000 U.S. new car dealers have shut their doors this year, and an additional 2,000 will close within 18 months, predicts Mark Johnson, president of a Seattle consulting firm that helps auto dealers buy, sell or merge operations. In September alone, 61 dealers - two a day - closed shop or downsized to used car lots, says the National Automobile Dealers Association (NADA). Wounded by gas prices that killed sales of their most profitable SUVs and trucks, dealers are being hammered as the economy depresses sales of all models. Even people with good jobs feel poorer and less confident to take on years of payments for a big purchase. Those who still would are finding it harder to get credit - General Motors credit arm GMAC now requires a credit score of 700 or better for a car loan. Banks’ reluctance to lend also is squeezing the dealers, who need regular loans (called “floor planning”) to finance inventory. More

The credit crisis sweeping around the globe is drastically curtailing shipping activity as shippers cancel contracts with shipowners because of the mounting difficulty of obtaining trade finance. Dry bulk shipping – the movement of large quantities of coal, iron ore, wheat and other bulk commodities – has also seen its problems exacerbated by the unwinding of speculative activity surrounding the sector. “A lot of shipments are cancelled because of the difficulty for buyers to open letters of credit,” he said. “World trade has been disrupted in certain lanes.” More

Gerald Celente
Once again, Washington has proven that anything it touches is doomed to failure. Unable to win wars, repair levees, fix voting machines or rebuild its Twin Towers, the colossal $700 billion bailout package passed last week by Congress proved to be an instant bust. As we predicted in our 26 September 2008 Trend Alert Put the Bailout on the Ballot — “The bailout plan will only bail out CEOs and preferred stakeholders of failing financial firms while sinking the American people deeper in debt.”

With not one major success to their credit and a long history of unmitigated disasters to pin their reputations on, the Wall Street rescue package did nothing to solve the credit crisis as those in Congress who rammed it through had promised. More

Ron Paul discusses the credit crisis. He suggests less government spending, balancing the budget and exercising the type of conservative fiscal discipline that Paul Krugman refers to as “Rump Republicanism”.

The credit crunch has forced at least five fee-paying schools to close, as increasing numbers of parents struggle to afford the fees. Three private prep schools have followed two prestigious girls’ senior schools and shut down after falling pupil numbers pushed them into financial difficulties, making them the sector’s first victims of the credit crisis. More

The US financial crisis is spreading from subprime borrowers to wealthier consumers, with evidence mounting that more affluent people are failing to pay their mortgages and credit card balances. Growing concerns over the financial health of richer borrowers are prompting banks and card issuers to tighten lending practices in moves that could futher dampen consumer confidence and spending more. Banks such as JPMorgan Chase and credit card groups such as American Express have clamped down on lending to customers that have traditionally been regarded among the safest and most profitable borrowers. “The crisis is just starting to spread beyond the middle class,” said Curtis Arnold, founder of CardRatings.com. “Even folks with good credit-ratings scores are no longer immune from adverse actions from their card issuers.” More

Radio Australia
The International Monetary Fund says there’s no end in sight to the credit crisis gripping world financial markets. As Australia’s NAB and ANZ have already discovered, the IMF believes banks are in for more pain as mortgage defaults soar and economies slow. The IMF has a particularly gloomy assessment of the US economy, and it came on the same day as the Bush administration revealed America’s budget deficit will climb to a record high of more than half-a-TRILLION dollars.

Financial Times
Global financial markets are “fragile” and indicators of systemic risk remain “elevated” almost a year into the credit crisis, the International Monetary Fund said on Monday. The fund warned credit growth in the US could fall further as a result of ongoing financial system stress and warned that emerging markets would be tested as global financing conditions tighten and policymakers grapple with rising inflation. The IMF also noted that house prices had softened in a number of European economies including the UK, raising the possibility of further problems in those markets.

The assessment came in the July update to the Global Financial Stability Report, led by former Bank of Spain governor Jaime Caruana. The IMF said that while likely losses on US subprime mortgages have “largely been acknowledged” in the form of writedowns, financial institutions faced a second wave of losses on other loans. Credit quality “across many loan classes has begun to deteriorate with declining house prices and slowing economic growth.” The Fund said bank balance sheets were under “renewed stress” and that the decline in bank share prices had made it more difficult for them to raise new capital.

This “increased the likelihood of a negative interaction between banking system adjustment and the real economy.” With mounting inflationary pressure, the Fund added: “Policy trade-offs between inflation, growth and financial stability are becoming increasingly important.” The IMF reaffirmed its controversial earlier estimate that total losses in this cycle could total $945bn – a number that combines mark-to-market losses on subprime-related securities and estimates of likely losses on loans.

Relative to April, when the Fund published its last GFSR, it said “systemic strains in funding markets continue” and the “low level of risk appetite remains unchanged.” Interbank lending rates “remain elevated” while “long term funding costs have risen” for financial institutions. The IMF said financial institutions globally have written off about $400bn since the crisis began last August, and that while they had raised substantial amounts of capital, the losses “exceeded capital raised.” Banks also faced problems maintaining their earnings, weakening stock prices, and making it more difficult to raise further capital.

The Fund said that policy interventions – mostly by the US Treasury and the Federal Reserve – had so far succeeded in containing systemic risk. But it said the “nature of resolution strategies and the extent of support have come into sharper focus” in recent months – a polite way of saying that the authorities in the US in particular have had to intervene further to preserve financial stability. It in effect endorsed the need for the US to shore up Fannie Mae and Freddie Mac in the short term – saying their failure would have systemic consequences – but said “the policy challenge now is to find a clear and permanent solution” for the troubled government-sponsored mortgage groups. The US Treasury has tried to deal with the immediate threat to Fannie and Freddie, while postponing discussion of their long term futures to a later date.

Michael Swanson
We are at a critical point in the economic history of the United States. I know of no other way to put it. The events of last week were of a character that we’ve never seen before. On Friday mortgage lender IndyMac Bancorp became the second largest federally insured financial company to fail after it got hit by a bank run. The Federal Deposit Insurance Corporation took it over. That news may be a big story, but is totally overshadowed right now by the teetering collapse of Fannie Mae and Freddie Mac. Both are in danger of going under and the Bush administration, Federal Reserve, and Treasury Department are now meeting on a daily basis to figure out what to do.

There is no news that would be worse than the collapse of these two institutions and such an event if it happens will have ramifications for the economy and stock market for years to come. Fannie and Freddie buy mortgages and then package them into bonds, which they guarantee. They then sell the bonds to investors, including mutual funds, hedge funds, pensions, annuities - just about any institutional investor you can think of. Odds are that if you own a mutual fund or annuity that you indirectly own a security backed by one of these two institutions. The two of them combined own half of America’s twelve trillion in outstanding mortgages and their failure would be the implosion of the entire financial system. More

The Telegraph
Bridgewater Associates has issued an apocalyptic warning to clients that bank losses from the worldwide credit crisis may reach $1,600bn (£800bn), four times official estimates and enough to pose a grave risk to the financial system. The giant US hedge fund said that it doubted whether lenders would be able to shoulder the full losses, disguised until now by “mark-to-model” methods of valuing structured credit. “We are facing an avalanche of bad assets. We have big doubts as to whether financial institutions will be able to obtain enough new capital to cover their losses. The credit crisis is going to get worse,” said the group in a confidential report, leaked to the Swiss newspaper SonntagsZeitung.

Bank losses on this scale would have far-reaching effects. Lenders would have to curtail loans by roughly 10-to-one to preserve their capital ratios. This would imply a further contraction of credit by up to $12,000bn worldwide unless banks could raise fresh capital. It would be almost impossible to attract or even find such sums from investors. While sovereign wealth funds command roughly $3,000bn in funds, this money is mostly committed already. The funds have grown extremely wary of Western banks with sub-prime exposure after burning their fingers so many times already. More

(Reuters) - Analysts at Morgan Stanley said the credit crisis fallout would extend into 2009, and that mortgage asset overhangs will drive additional write-downs as brokers struggle to de-risk their balance sheets. “Risk management failures stemming from the credit crisis will continue to weigh on the group as brokers try to draw down illiquid assets, deleverage balance sheets, and fortify liquidity and capital positions,” analysts Patrick Pinschmidt and Avi Ghosh said. They initiated coverage of the U.S. brokers’ sector with an “in-line” view, and said they favor U.S. brokers over U.S. large-cap banks and European universal banks. More