An Interview Published By Barron's

[Kf6vci]

http://online.barrons.com/article/SB121763...007.html?page=1

The FDIC has about 70 banks on its list. Let's see whether the madness of way too low short term rates will be continued by the FED. Real inflation is way higher than 2% and at some point this will have to be changed). Dissenting views are invited!

I expect there will be welfare-losses in a few years as a result of the ongoing irresponsibe FED policy.

Inflaltion in LOS is also out of control and near 10%.

What do you think?

Are you hedging your portfolio?

Are you buying put options or selling futures?

Are you exiting equity markets?

[JSixpack]

Barron's has always run gloom-and-doom articles. Great for subscriptions, I guess. But really you can find an expert who will hold any viewpoint you want to hear.

In short, I wouldn't panic. You're in for the long term, aren't you?

[NotNew2You]

the professor was primarily commenting on the US economy. Many other commentators (Krugman, et al.) also predict a severe "day of recogning" for the US economy sometime in the near future (5 year horizon). This is due to the massive US trade and budget deficits (current account deficit) and future unfunded state and federal government liabilities (medicare and local/state/ employee pensions). His prediction is a loss of confidence in the dollar and afurther plunge in its value. The problems with most of the deficits are easily solvealbe with some basic fiscal dicipline but he fears the political gridlock makes such a resolution unlikely before the crisis hits. At that point, the markets will solve the problem of the deficits in their own brutal fashion.

Primarily, one would want to stay away from sectors of the economy dependant on the consumer (70% of US economic activity) and focus on major exporters and US corps that get at least 50% of their sales/earnings overseas. Also, a healthy dose of non-US equities would be a good move. Maybe 10-20% in gold and other hard assets would also be advisible.

Basically, try to limit exposure to US dollar assets.

[cloudhopper]

Thanks for the link. A significant amount of U.S. home equity debt is now de-facto unsecured and credit card debt has always been unsecured, and these have been bundled up and sold all over the world as bonds. So I expect if these default in significant numbers as has sub-prime debt the ripples will spread globally.

[Kf6vci]

Thanks for the link. A significant amount of U.S. home equity debt is now de-facto unsecured and credit card debt has always been unsecured, and these have been bundled up and sold all over the world as bonds. So I expect if these default in significant numbers as has sub-prime debt the ripples will spread globally.

Cloudhopper, Citibank just announced a XXX million loss on securitised credit card debt. And American Express reports difficulties across the whole range of customers. even the rich guys are hurting in one way or another. And a friend with her own business in better shape than ever got her line of credit and other debt slashed brutally overnight.

The next days, you guys might want to watch the Dollar and how the 10 year T-Bonds are doing. The FED does not control the long end and like corporate debt requiring way higher yields to find a buyer, government bond yiels have increased. This means that those who hold such bonds might get hurt, too. Americans might consider A$ or NZ$ for higher yields.

Germany won't corroborate this. -1% GDP the last quarter is leaked.

[Kf6vci]

There are countless bundled products out there, from auto loans to credit cards debt.

[Kf6vci]

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

By Christine Harper

Enlarge Image/Details

Aug. 6 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.

Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.

``Morgan Stanley periodically reassesses client property values and risk profiles,'' said Christine Pollak, a Morgan Stanley spokeswoman in Purchase, New York. ``A segment of clients was recently notified of a change in the status of their home- equity line of credit, or HELOC, due to a change in the value of their property and/or their credit profile.''

Pollak declined to specify the dollar amount of the frozen credit lines. The firm's global wealth management division, which doesn't disclose how many clients it serves, had 8,350 advisers managing $739 billion of customer assets at the end of May, according to its second-quarter earnings report.

No Recovery Seen

``It's evidence that they don't think the economy is going to recover quickly,'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Morgan Stanley shares ``outperform'' and who owns some of the stock. ``The fact that they're trying to get ahead of the problem is very good.''

Morgan Stanley has already taken about $14.4 billion of losses related to leveraged loans and collateralized debt obligations. The clampdown on home-equity loans mirrors similar efforts by commercial banks, said David Hendler, an analyst at Credit Sights Inc. in New York.

``All consumer lenders and home-equity lenders are reassessing the environment given the pressure on housing and the economy,'' Hendler said.

JPMorgan Chase & Co., the second-biggest U.S. bank by market value after Bank of America Corp., has notified 150,000 customers about changes in their home-equity lines of credit since March, said Christine Holevas, a Chicago-based spokeswoman.

Changes Made

In some cases the lines have been reduced and in other cases they've been suspended, depending on the change in home values, she said. The changes affect about 15 percent of JPMorgan's home- equity credit customers, Holevas said.

Bank of America and Washington Mutual Inc. are among the other lenders that have frozen home-equity credit lines this year.

``Morgan Stanley customers are typically coming out of their wealth management side, so typically a high net worth customer,'' said Christopher Whalen, co-founder of Institutional Risk Analytics in Torrance, California. ``This shows you they are under the same pressures as everybody else.''

To contact the reporter on this story: Christine Harper in New York at [email protected].

Last Updated: August 6, 2008 00:00 EDT

[cloudhopper]

AIG Posts Third Straight Quarterly Loss on Housing (Update2)

By Hugh Son

Aug. 6 (Bloomberg) -- American International Group Inc., the world's biggest insurer by assets, posted a $5.36 billion loss as writedowns tied to the housing slump wiped out profit for a third straight quarter. Shares fell 8.2 percent in extended trading.

The loss in the period ended June 30 equaled $2.06 a share, compared with profit of $4.28 billion, or $1.64, a year earlier, the New York-based company said today in a statement. The loss excluding the declines in the value of some investments was $1.32 billion, or 51 cents a share, missing by $1.28 the average estimate of 19 analysts surveyed by Bloomberg.

``They're still dealing with the environment for credit- default swaps, which is very difficult,'' said Keith Wirtz, who helps manage $23 billion including 1.3 million AIG shares as chief investment officer of Fifth Third Asset Management in Cincinnati. ``Investment income is being pressured.''

Chief Executive Officer Robert Willumstad promised there are ``no sacred cows'' in his three-month review of AIG units as he tries to reverse a 50 percent stock slide this year and net losses in two previous quarters totaling $13 billion. Willumstad, 62, replaced Martin Sullivan June 15 after investors including former CEO Maurice ``Hank'' Greenberg demanded Sullivan's ouster.

The insurer reduced the value of credit-default swaps, guarantees AIG sold to protect fixed-income investors, by $5.56 billion and marked down other holdings by $6.08 billion before taxes.

Housing Writedowns

The biggest insurers in the U.S. and Bermuda posted more than $77 billion in writedowns linked to the collapse of the mortgage market from the start of 2007 through the first quarter, with AIG representing about half that total.

AIG raised $20.3 billion in May by selling debt and equity to replenish capital and protect against further writedowns. Citigroup Inc. analyst Joshua Shanker said in a research note that month that AIG may seek $10 billion more.

The insurer fell $2.38 to $26.71 at 6:03 p.m. in New York. AIG is the second-worst performer this year in the Dow Jones Industrial Average behind General Motors Corp. Second-quarter results were announced after the close of regular trading today.

``We have a lot of work to do to restore AIG's profitability to where it should be,'' Willumstad said in the statement. He said he'll update investors on his turnaround plan next month.

AIG has other units affected by the worst U.S. housing slump since the Great Depression, including a mortgage insurer and home lender. The company said June 17 that its Wilmington Finance Inc. unit will stop originating mortgages through brokers and reduce the number of loans it makes directly to homebuyers.

Mortgage Insurance

AIG's mortgage insurer, United Guaranty Corp., had an underwriting loss of $564 million, a fourfold increase from a year earlier. The unit, which reimburses lenders when borrowers don't pay their loans, said 4.9 percent of policies were at least 60-days past due, almost double a year earlier.

The unit may be unprofitable through the middle of next year, the company said today. In June, 67,908 insured borrowers fell at least 60 days delinquent industrywide, compared with 43,214 who got out of arrears, according to the Washington-based Mortgage Insurance Companies of America.

AIG's American General Finance lost $40 million as the home lender increased its allowance for loan losses and spent money to scale back its Wilmington Finance Inc. mortgage business. The unit earned a profit of $43 million in the same period a year earlier.

One in every 171 U.S. households was foreclosed on, received a default notice or was warned of a pending auction in the second quarter, said RealtyTrac Inc., double the rate of a year earlier.

Hedge Funds, Private Equity

Earnings from private equity and hedge fund holdings plunged more than 90 percent to $91 million in the quarter after declining 84 percent in the period ended March 31. AIG had $29.9 billion in the so-called ``alternative'' holdings as of June 30. Hedge funds returned $207 million while private equity resulted in a $116 million loss.

Allstate Corp., Hartford Financial Services Group Inc. and Lincoln National Corp. all said second-quarter returns from such investments declined by more than 60 percent.

The financial products unit responsible for credit-default swaps guaranteed more than $460 billion of assets for fixed- income investors at the end of March, including $60.6 billion in securities tied to subprime mortgages.

AIG named former Goldman Sachs Group Inc. Vice Chairman Suzanne Nora Johnson to the board last month to help restore investor confidence. Investors including billionaire Eli Broad pressured Willumstad to bolster the company's financial leadership.

New Leadership

Richard Holbrooke, a former U.S. ambassador to the United Nations, and Ellen Futter, president of the American Museum of Natural History in New York, resigned from the board.

Willumstad, who is also AIG's chairman, has said he'll meet with the insurer's unit heads, business partners and regulators to get a better feel for the company, which has about $1 trillion of assets, 116,000 employees and operations in more than 100 countries.

AIG is struggling with writedowns at the same time prices are declining industrywide for commercial insurance. Rates in the U.S. fell 13 percent in the second quarter from a year earlier as insurers cut prices to win market share, according to a survey by the Council of Insurance Agents & Brokers in Washington.