I'm Getting Dizzy!

Reading the headlines these days, I can't help but feel dizzy as we are getting inundated with endless articles that highlight the current financial crisis. Even though I've anticipated this mortgage and general credit crisis for 3 years, everything is unravelling so quickly, that it's getting hard to keep up. Here are some of today's highlights:

From Bloomberg:

Fed to Lend $200 Billion, Take on Mortgage Securities

The Federal Reserve, struggling to contain a crisis of confidence in credit markets, plans to lend up to $200 billion in exchange for mortgage-backed securities.

The Fed coordinated the effort with central banks in Europe and Canada,
which plan to inject up to $45 billion into their banking systems. The Fed said
in a statement it will hold auctions of Treasuries in exchange for debt
including AAA rated mortgage securities sold by Fannie Mae, Freddie Mac and by
banks.
...
Today's steps indicate the Fed is increasingly concerned about the investor exodus from mortgage debt, which threatens to deepen the housing contraction and the economic slowdown. While they fall short of the calls by some analysts for the Fed to make outright purchases of mortgage debt, the central bank left the door open to expanding the effort.

Again, from Bloomberg:

Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss

Even after downgrading almost 10,000 subprime-mortgage bonds, Standard &
Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA
securities that are the mainstays of bank and insurance company investments.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26
cents, according to Credit Suisse Group.

"The fact that they've kept those ratings where they are is laughable," said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. "Downgrades of AAA and AA bonds are imminent, and they're going to be significant."

From Reuters:

Bank chiefs asleep at subprime switch, Fed governor says

In scathing criticism of their failure to understand the risks of the subprime market, a senior Federal Reserve policymaker Tuesday lambasted top bankers and called for
more prudence in lending.

"In particular cases, senior management was not fully aware of the firm's latent concentrations to U.S. subprime mortgages," Fed Board Governor Randall Kroszner said in remarks to the American Bankers Association.

"They did not realize that in addition to the subprime mortgages on their books, they had exposure to off-balance sheet vehicles holding mortgages, through claims on counterparties exposed to subprime," he said.

From USAToday:

401(k)s tapped to save homes

Struggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators.

Rather than borrow money from their 401(k) accounts, which would have to be paid back, a growing number of beleaguered families have been cashing out, plan administrators say.

This is happening even as borrowing from 401(k) accounts remains fairly flat. Fewer still are borrowing from 401(k) plans to buy homes. By contrast, new figures from plan administrators show the number of 401(k) "hardship withdrawals" is up in early 2008 compared with the same period last year.

The main reason? The need to stave off foreclosure or eviction.

There will be more daily articles detailing the financial mess that we are currently in. You will hear more sad stories of families facing foreclosure, job losses, bank failures, credit card defaults...etc The pain is coming and it will be much worse than anyone ever imagined but it will eventually pass. Hopefully, when the banking and economy gets kickstarted, we'll establish rules to make sure that this mess never happens again...until everyone forgets about this mess and it happens again.