Commodity Cartel
The Global Computerized Network Provides The Platform
The Asymmetrically Intertwined, Multi-layered Global Economy Contains Bullies & Losers
Civilization Has The Option To Level The Global Economic Playing Field
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Oil Is Fungible -- Food Stuffs Are Not
They Say "Buy Our Oil"
Industrialized Civilization Proclaims "Free-market Exchanges"
 
Commodity Cartel
The Concept:  Operate free-market trading having guaranteed clearing mechanisms within a cartel structure.
Industrialized nations consistently produce reliable quality and quantities of agricultural commodities and processed food stuffs. These food stuff producer nations should form the Organization of Metal & Agricultural Producing nations. This cartel could operate as an oligopoly commensurate with OPEC. It would meet OPEC on its level. It would establish and operate free markets within this cartel duality. Separate free markets will operate trading mechanisms via formal exchange platforms in order to price-discover and trade. This new cartel will provide agricultural and metal commodities in exchange for OPEC oil.  Varieties of oil are relatively fungible compared to other commodities.
Inflation Dampening:
New record high prices are being set for most commodities: Oil, Agricultural, Metals. This would normally lead to inflation even after intermediate-term consumer price resistance. However, since much of the volume of most commodities will be traded directly to the consuming nations dynamically in a just-in-time mode, their relative valuations will fluctuate and over time ameliorate inflation.
Example:
Since US wheat may be traded for Saudi oil, following dynamic price discovery on both side of the trade, demand and supply will force stability of production and hold prices firm relative to each other. When the US needs oil, it can enter the cartel's market system, place a bid for oil with the payment to be made in wheat. Both oil and wheat will be related based upon the dollar value of each and the dollar's spot valuation.
Macro Globalization:
--   Introduction of these two matched cartels competing directly supported by underlying free-market mechanisms is consistent with the breakdown of the nation-state and development of a homogeneous global economy.
--   Oil-rich regions of Africa, Asia, South America, and the Middle East are susceptible to political unrest and civil disobedience. These result in economic disruption and oil flow outages. Cartel arrangement carries macro oversight. That is, presumably cartel management is educated and economically-savvy enough to ensure that its commitments are delivered by all its members. If a member of a cartel reneges on a trade, the cartel can use its oversight powers to consummate the trade using another member's resources. Therefore the dual cartel arrangement -- Oil & Commodities -- should allow for increased global trade stability.
--   The use of macro cartels serves to ameliorate potentially disruptive powers of national and regional demagogues and dictators. These tyrants will have their power to damage held to local levels.
The Oil-Agricultural-and-Metal commodity equation is being changed by the diversion of raw product supplies from food stuffs toward ethanol production. This is an evolving problem regardless of any improved trading mechanisms which could be established. Shortages of agricultural supplies eligible for export from several nations may be declining since those supplies start with farmers' crop choice shifts and flow vertically through the agricultural process.
Uncoiling Capitalism Is Unleashing Itself Around The Globe
Understanding & Accepting Without Fear
The credit clutch is only one aspect of the globalizing economy. It was first visible in early 2007. It is nothing more that a large-scale, all-encompassing, complexly intertwined financial adjustment.  It is a consequence of the natural globalization that started evolving in the last quarter of the 20th century.
The only way to comprehend the new world economic and cultural orders is to view today's global economic situation from the highest level perspective. That will -- to an informed, educated, experienced, clear-thinking mind -- provide understanding.
The year 2008 will be recorded in history as the year wherein globalization widely impacted all major economies. Over the next years all major economies will continue to adjust to the implementation of capitalism within the evolving global structure.
Some people are short-sighted. Some people are envious. Some people are angry. Many people in each of these inferior groups of people manifest their emotions as hatred of the United States.
If the United States manages to gain leadership during 2008, the USA will arise stronger and better positioned within a broadly globalizing economic structure. The USA will be the focalizing force that lifts up more people than any other phenomenon in mankind's history.
Commodities -- Key To Capitalism
The global demand for commodities is increasing as the global population grows, becomes Westernized, civilized, and demands food, clothing, shelter, and luxuries. Commodity price speculation is fueling all-time record prices for resources including precious and industrial metals, grains, soft commodities, and energy. Computerized trading connects all civilized people with all other civilized people and provides a platform for increasing commercial and personal wealth.
Industrialized nations need a cartel commensurate with OPEC.
Industrialized nations sell large quantities of metals, energy into the global economy. The US and Canada sell a major portion of all grains -- raw and processed food stuffs -- into the global economy. OPEC's member nations sell oil and little more beyond relatively small quantities of pistachios, figs, and other products that are readily attainable elsewhere.
If any global or US leadership existed, it would lead the formation of a commodity cartel.
Industrialized nations should do as it should have been doing for decades:  Exchange commodities -- including refined oil -- for Arab, African, South American, and Asian crude oil. That is the function of the Commodity Cartel.

Oil Is Fungible -- Food Stuffs Are Not

Nor are most soft, metal, & energy commodities fungible. Commodities vary in potential availability, usefulness, applicability, refining, transport & storage requirements, utilization efficiencies, and political contexts, and intrinsic costs to recover. Varieties of oil are relatively fungible compared to other commodities.
 
Oil, Sand, & Contention
Please Buy Our Oil, Part 1

Buy it by the gallon, barrel, or tanker		 Despite oil's importance, its high price alone will not negate efficiencies derived from technology and today's relatively decreased and declining-per-function oil dependency.

Problems prevalent in the Middle East, South America, Africa, and Asia can cause oil price spikes anytime.
However there are many nations that need to sell oil in order to maintain stability and many that must sell oil weekly in order to survive. Most of these nations have little else to offer. Those facts ensure that oil will be available at a not too extraordinary price. These nations may hold or restrain oil exposrts for short periods, but they will relent and sell after relatively brief periods of curtailment.
Beyond supply and demand factors, inflation is psychological. US business and consumer psychology includes fear of inflation and fears relative to the War Against Terrorism. These fears prevent acceptance of price increases and prevent the long-term bidding up of raw materials, finished goods and services. Aside from sporadic market speculation, commodities and raw materials will remain stable.
Oil is an exception because its supply is modulated by the OPEC cartel. The Arabs have plenty of oil, but it is underground. Even when Western engineers pump it out of the ground, the people of the Middle East have little use for it, although there is a developing need for oil products in many growing and under-construction cities. Arab lands will sell oil as long as there are buyers. They won't raise the price too high because that would clog the machines that use their oil. Also, consumption of oil can be inhibited by prices that are higher than the industrialized world's perceived affordability.
The Arab, Asian, and South American nations may not say please, but they will always be pleased to sell oil. African nations likely will curtail sales for longer periods due to being more severely impacted operationally by political upheaval.
Please Buy Our Oil, Part 2
Arab nations have one primary use for crude oil: To sell it. Some oil may be refined locally to fuel their developing economies, but the major portions of Arab and African oil is exported to the industrialized world.
Arab nations' primary revenue source is from the oil exported to industrialized nations. Oil is the only resource they have that may satisfy the large revenue needs those nations have come to rely upon.
The industrialized world does not need to buy OPEC oil. It has additional sources for oil including domestic supplies becoming more fruitful through technologies that extract growing portions of oil from wells and related materials. We are decreasing our need for oil through more efficient factories, vehicles, and electronically controlled devices which utilize computer-controlled technologies and new lighter and stronger materials.
The industrialized world is composed of civilized nations whose people desire to coexist. Its internal supply of oil is for sale with reduced risk and ideological conflict. The industrialized world's component nations buy each others agricultural products and technology and could be induced into sharing more of its oil. Enhanced civilized commerce would develop and each involved nation would benefit.
As soon as some speculators make enough money and some other speculators lose enough money, the speculation in oil will end... until it starts again in the next round of opportunity. One day the trading-pit oil market will cool and prices for this mundane, abundant commodity will return to a supply-demand priced equilibrium. Wherever the price of oil settles, in the low $30s, upper $40s, or elsewhere, is not the issue. It will be in a range determined more by consumers and less by speculators and OPEC.
Please Buy Our Oil, Part III
What the world needs is an organization of oil consuming nations. The global oil market has been lopsided for over one-third of a century.
OPEC developed a quasi-monopolistic cartel which allowed it to set an arbitrary benchmark price for oil partially through quantity controls. OPEC holds consuming countries to its non-market price. As the global economy evolved over the last three decades, OPEC lost much of its pricing power. Today OPEC's benchmark price is to an extent ignored by market forces. Those forces include speculation, hedging by users and financial entities, transient forces such as terror threats, realties, perceptions, dynamic events such as refinery capacity changes, meteorological events, and seasonal demand pressures for various oil byproducts.
The oil price-demand-quantity pendulum has swung from OPEC's powerful monopoly of the 1970s-1980s to the intervention era of market forces during the 1990s-2000s. It is now appropriate for consuming nations to unite into a formal buyers' consortium. This buyers' consortium should initiate formal policies implementing purchasing and ordering processes, allocation procedures for when shortfalls develop, and price-quantity negotiations with OPEC in conjunction with the industrialized using and producing nations.
The oil consuming nations must change the currency used to pay OPEC nations. OPEC and other nations that insist upon using oil revenue for offensive military purposes should be paid on a sliding scale. That scale will shift from 100% financial payment toward 100% commodity payment as dynamically warranted by supply and demand. An oil producing nation's financial reward for having satisfied market needs will be directly proportional to its cooperation on a global scale.
The world has enough oil to provide stable growth of newly-developing countries while supporting development of industrialized nations. Price spikes now created by wildly excessive speculation and over-dramatization of fear would be smoothed through effective implementation of the Organization of Consuming Nations and its formal and controlled implementation of purchasing, allocation, and payment procedures.
Providing Perspective
   Providing Perspective
Growth Through Deflation
Precious metal, base metal, agricultural, and oil commodities continue to reach all-time highs in 2008.
Manufacturers are paying increased prices for the raw materials and semi-finished products they use to produce finished goods. Manufacturers' labor costs are rising.
The consumer is unwilling to pay higher prices for finished goods. Therefore, manufacturers are caught in the middle. They cannot sell finished goods at a profit unless they decrease some major-category cost of production. Labor costs can be decreased through outsourcing.
Manufacturers are able to reduce the cost of labor if they outsource manufacturing to nations where labor costs are significantly lower than in the US.
This trend has been in place for decades and has gained momentum over the last decade. US labor costs must decrease or outsourcing will continue to its limit.
This trend has a theoretical limit: outsourcing will end when all US labor has priced itself into unemployment and it has no money to buy the outsourced finished goods shipped back into the US. Then the US will be the country where manufacturing is outsourced to. US manufacturers will insource and start hiring US labor at lower, globally-normalized, competitive wages.
It Is Fair
There is no affirmative action policy in the global economy. Nor are there any union contracts protecting labor.
Work rules, hiring practices, production quotas are all set by the global customers' demand for goods and services. That demand will be set by the global customer base and depend upon quality, price and availability of products.
No US president, trade union, or governmental mandate can do much to influence the global customer base. It is up to each individual worker to work and produce the best products at fair prices.
Workers who are able to accomplish that objective will have jobs and earn fair wages in the global economy.
Market Forces Rule
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The US economy is growing and -- as expected in most growth periods -- there are flashes of inflation. But there is little long-term pricing power in most consumer goods and services.
The Fed raised a benchmark interest rate, but markets ignored the move and rates that traditionally derive strength from Fed policies went down. In the weeks following the Fed's trend change from decreasing to increasing rates as demonstrated by its increase of its over-night inter-bank lending rate, the benchmark 10 year bond's rate decreased by about a quarter point. Market rates had over-shot in anticipation of the Fed's first change in direction in over four years. Markets have since corrected their errors.
Within a month of the Fed's rate increase, the economy demonstrated how fragile its recovery actually is. Housing and manufacturing statistics started to show weakness.
Inflation is psychologically based. US businesses and consumers are frightened of inflation as well as war and will not accept prices increases or bid up raw materials, finished goods and services. The Fed can relax and allow the economy to cruise along providing US prosperity. Aside from sporadic market speculation for quick profit, commodities and raw materials will remain stable over the intermediate term.
Liquidity exists today as never before. More globally accessible markets are connected electronically, there is more capital, and more commercial transactions each day than at any time in history.
The Fed may change benchmark interest rates, but markets will set realistic rates and maintain stability.
Mr. Greenspan and the Fed governors should comparison shop monthly at the malls, grocery stores, WalMart and Target, and check out a few car deals. If they did they would observe deflation: The same or lower prices on improved products -- many having new features and capabilities.
Tax Cuts Work
Tax cuts & fiscal policies caused US economic growth, job growth & domestic job containment. Thanks to tax cuts in the US, the economy has been allowed to grow and business to hire. Again, as in 1963 and 1983, it has been demonstrated that when taxes are cut, businesses hire, build factories and buy equipment, and government revenues actually increase.
More people earn wages and can afford to buy consumer goods and services. Government collects taxes on those wages and purchases. Therefore, government may actually collect more money after a tax cut than before the tax cut. President Bush, like Presidents Reagan & Kennedy, demonstrated that tax cuts result in economic growth.
A Survey
1.)  Are you in favor of industrialized nations forming a commodity cartel to promote global trade?
Yes, for sure No, I don't understand. I don't understand the plan.
2.)  Reducing taxes increases government revenue, employment, & economic growth.
Yes, because we keep more of the money we earn & buy consumer goods manufactured by employees working for wages. No, I just don't see that.
3.)  Do you plan to buy a new car, SUV, or light truck for your personal or family use within the next 6 months?
Yes                   No
Reagan's Bull
The stock market of the 1990s is one of the most powerful bull markets in history. It was also the final blow off, grand finale, and coming to fruition of the rally that started the day after Reagan's first presidential win.
The day after Reagan's win in 1980, the day after US hostages had just been released from Iran, Reagan would soon be taking over from Carter, and suddenly the nation looked more rosy than it had in several years. The stock market rallied. Over the next two years, taxes were reduced and Reagan was in charge. Paul Volker was put in charge of the Fed and mandated to end inflation. He did so by raising the prime rate to over 20%.
Suddenly in August of 1982, the stock market took off. The Reagan rally had begun in earnest.
Inflation was broken and pounded to death over the next decade by productivity increases and a favorable investment climate brought about by lower taxes.
During the holiday season of late 1989, the Berlin wall fell and over the next years the remnants of communism's failures collapsed. This appeared to mean the end of conflict and global war. By the mid-1990s, technology had joined fiscal policy to help defeat inflation.
There were cultural forces in the mid-1990s which warned of rotting and unsafe conditions. But market exuberance ignored the signs.
Economists, psychologists, and historians can debate the importance of these various factors, their relative magnitudes and impacts upon market investors, but there was a confluence of factors that, when coupled with the positive and comfortable cultural and economic climate established by President Reagan during many investors' formative years, joined into a massive final rally which lasted until the spring of 2000.
At that point exhaustion and fear overrode the positives. Negatives, including leadership failures, started to impart a rational reality upon markets. Recent exuberance was seen as inappropriate and investments were suddenly understood to be risky. This collapse occurred with about the same speed as the positives had come to be perceived in the early 1980s. Markets cooled from numbers unseen before and absurd valuations. Specific stocks were looked at from a valuation perspective, rather than a cost to own basis. Companies were exposed and accounting and operating malfeasance and corruption was seen as rotting them from the inside and top down.
The Reagan rally -- that decades-long bull run -- benefited many including many a politician who happened to be in office at the right time. The end of the rally hurt many who had over-invested and gambled, and those who naively entrusted retirement funds to a risky market that might have been seen as too top heavy.
The markets will someday return to relative stability and again be relatively safe investment vehicles. But that return -- the next genuinely sustainable long-term rally -- will only occur in the aftermath of a complete cleansing of previous over-speculative residue. The next genuine rally will also require the most difficult element to find: True leadership.
The Exposure Of The Imperial Beggar
2008 -- Uncoiling For The Massive Power Shifting Payback Year  --  For over three decades Middle Eastern ruling families have been amassing the huge wealth they possess today. Over the last decade China has been amassing the huge wealth it possesses today. Since around 2003, the US housing bubble has been fueled by financial institutions handing out mortgages to unworthy people while collecting fees and interest in the near-term, knowing that the house of cards thus built could default upon rate resets scheduled to take place in the intermediate-term. These financial organizations off-loaded their liabilities to other financial institutions by packaging varieties of liabilities in contrivances known as CDOs, SIVs, and more. At the start of 2008 it is apparent that the magnitude of liabilities is so extremely large and so widely dispersed into US and European-based financial institutions that it is not manageable nor containable and is threatening their survival. They are now attempting to survive by cannibalizing themselves -- selling portions to immediately raise cash.
The last days of 2007 are exposing the beginning of a massive uncoiling of Middle Eastern rulers' and Chinese sovereign funds' cash hoards through acquisition of US and European-based financial assets. This takeover is being accomplished using two different sources of wealth. The Middle Eastern monies have been acquired through the sale of oil that willingly flows out of the ground under the feet of Middle Eastern tribal leaders. Chinese monies have been acquired through the sale of large quantities of mass-produced everyday consumer goods products.
Due to massive losses now only partially acknowledged and exposed by major US and European-based banks and investment institutions, Western financial institutions are being purchased piecemeal by Middle Eastern and Chinese wealth at  bargain prices. Due to the magnitude of losses sustained by US and European institutions, they are unable to resist the bailouts originating in Middle Eastern and China.
Globalization has taken an irreversible twist:  US and European financial institutions are being purchased and thus infiltrated and controlled in ever-increasing magnitudes by outsiders having only long-term financial interests to guide their directions. These new owners come from cultures that previously had existed in 19th century modes at best.
Control of financial institutions is globalizing geographically. Control of financial assets is consolidating into an ever-decreasing number of non-capitalistic hands.
Sovereign funds & wealthy Middle Eastern families are accomplishing what suicide bombers and al Qaeda are failing to accomplish: A takeover of Western civilization using financial means rather than mass-murder coercion.
If present trends continue, within two decades the proportion of immigrants in the United States will surpass the peak reached more than a century ago.

The nonpartisan Pew Research Center estimates that at some point between 2020 and 2025, foreign-born citizens and immigrants -- legal & illegal -- will make up 15% of the American population. That is more than 1 in 7 residents. These groups represented around 12% of the population in 2005, 14.7% in 1910, and approximately 15% in the late 19th century. Previous immigrant inflows contained individuals different from those flowing in today.
How Might A Relatively Small Group Of Sub-standard Borrowers So Disrupt Global Credit Markets?
? Who are these people, the subprimers... and why were they promoted so heavily for mortgages that they could barely afford in the short-term and not afford in the intermediate and long-term?
These Are Times When Wisely Experienced People Perceive Opportunities -- Extreme Wealth May Be Earned
The global credit crisis has been gaining visible momentum since early 2007. It will continue. It is spreading to currencies, stocks, bonds, derivatives, & global investments of all grades & origins. It is overlaying into commercial real estate markets. The items presented below include key actions, events, and news regarding the course of the unfolding, multifaceted crisis.
Consider the enormous profits previously accounted for, booked, reinvested, & paid as dividends, bonuses, & salaries during recent years. Fortunes will shift ownership.
Meaningful Events
   Meaningful Events
February 11, 2008
Major banks and securities firms have so far disclosed over $146 billion of credit losses and write downs. That is as of January, 2008. The subprime housing market collapse started rippling in about the middle of 2007.
As of September, 2007, there were approximately 7.1 million subprime loans outstanding.
How many subprime borrowers does it take to bring the global financial mechanism to a halt?
How many are there in the US culture of delinquency?
February 8, 2008 -- Decision Displaying Reality -- The European Central Bank dropped its threat to raise rates in order to more aggressively fight inflation. Instead it held rates unchanged.
This ECB position unmistakably displays its concern for the worsening global economic slow down. The ECB held its main interest rate at 4%.
The Bank of England, the ECB's counterpart, cut its benchmark rate by a quarter-point to 5.25%. The ECB later stated it may follow through and lower its rate also.
The president of the ECB, Jean-Claude Trichet, said, "This assessment is in line with indicators for business and consumer confidence which, while having declined over the past few months, over all, remain consistent with ongoing growth."
The Bank of England's governor Mervyn King warned through a bank statement that inflation remains a concern. The bank's statement added that "prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued." The British central bank said it needs "to balance the risk that a sharp slowing in activity pulls inflation below target in the medium-term against the risk that elevated inflation expectations keep inflation above target."
This interest rate cut was the second in two months by the Bank of England.
Two One-way Streets
One impacts inflation. The other impacts growth. Each street runs in opposition to the other. Central banks can drive only one street at any given point in time.
Moral suasion must do for now.
February 5, 2008 -- Deposed & Broken -- US-based financial institutions have been hobbled by a relatively small number of employees including executives, managers, traders, & traitors. Their self-interest and greed was as large as their unjustifiable over-empowerment. The New World Order includes a damaged United States financial system that was torpedoed by complex, computer-created, packaged derivatives known as SIVs, CDOs, and other securitized instruments. Each type of instrument encapsulated, disguised, and shielded from view its intrinsic risk. Each enticed buyers who were not adequately concerned with underlying risks.
For the first time a Chinese bank is the world's largest financial institution.  Industrial & Commercial Bank of Chna, China Construction Bank, and Bank of China have surpassed Citigroup's capitalization.
In 2003, there were 13 American banks ranked in the top 20. There was not a single Asian bank. Today there are four Asian and six US institutions. The credit clutch of 2007 destroyed almost $100 billion of value from the three biggest US banks. That destruction occurred during the last half of 2007.
Today Beijing-based ICBC is the largest financial-services firm. Citigroup has decayed to 7th place even after billions of recently-added capital. ICBC has more customers than the combined populations of France, Spain and the United Kingdom.
Those top to mid-level US-based financial institution executives, managers, traders, and traitors are slipping away with bonuses and departure payoffs large enough to keep them comfortable in New World Order.
The New World Order will include a less arrogant US population. However, Americans will experience much more pain before they awaken to new realities.
December 6, 2007 -- Now we know why smart people have bad credit ratings. Because they receive preferential mortgage rates while wealthy people -- likely to have good credit ratings -- will pay higher rates to make up for lenders' decreased profitability. And, wealthy people will earn less on their investments because banks will pay less to make up for decreased profitability.
The Bush administration announced a plan for borrowers who never should have received low-rate mortgages in the first place and now face an increase in their monthly mortgage payments when those special low rates reset to normal rates.
The proposal was agreed to following talks between Treasury Secretary Henry Paulson and representatives of the mortgage industry. Their plan will freeze introductory "teaser" rates on subprime mortgages which will prevent low teaser rates from resetting to normal rates for five years.
President Bush stressed that the special arrangement is not a bailout because no government money is involved. He failed to identify the fact that by being subprime a person will now receive preferential rates for another 5 year period. He failed to identify how these special low rates will cut into lenders' profitability.
Specifically, approximately 2 million subprime mortgages that had been given to borrowers with spotty credit histories will not reset to the rates these borrowers contracted and agreed to. Instead, introductory -- teaser -- rates of about 7% to 8% that were scheduled to reset to about levels as high as 11% will not reset. As borrowers and the financial institutions' commissioned sales forces knew, this reset would add hundreds of dollars to the their monthly payment.
The New American Way
Sage financial advice from those who pay late, don't care, & have won a bonus:
It is better to be a subprime borrower than to lend to subprime borrowers.
And next time special low rates reset upward, will the subprime crowd default? And the prime crowd?
November 30, 2007 -- Headlines across financial press reports read: "Citi Sells Off More SIV Assets"
Lead paragraphs proclaim: "Assets in the structured investment vehicles declined to $66 billion as of Nov. 30 from $83 billion as of Sept. 30, Citigroup confirmed."
Citigroup announced that it has sold off 20% of the assets in its structured investment vehicles over the last two months. As of November 30, assets in the SIVs declined to $66 billion from $83 billion as of September 30. Citigroup acknowledged this following a report from Moody's Investors Services detailed falling asset values of several SIVs.
Citigroup manages seven SIVs. The Moody report stated that six of them including Beta Finance Corp., Centauri Corp., Dorada Corp., Five Finance Corp., Zela Finance Corp. and Sedna Finance Corp., experienced asset value declines since September. Moody's said assets declined at SIVs managed by other financial institutions, too, including HSBC Holdings, Bank of Montreal, Standard Chartered Bank, Societe Generale, Rabobank International and MBIA. The ratings agency has put many of SIV assets on review for possible downgrading.
The declines reflect efforts of Citigroup and other institutions to sell off SIV assets and lower the troubled funds' leverage. Possibly at some unknown time the world stock of SIVs will liquidate completely.
The question for investors is, "Are these declines in value due to selling out of portfolios or due to declines in value of the underlying instruments?" Obviously declines are due to some unknown and indeterminate combination of both selling and deflation.
Isolation, identification, and evaluation of the causes for the declining valuations is indeterminate.
November 6, 2007 -- The Financial Times had the following to say.
As the tech bubble imploded, fund managers stopped pretending to know what ethernet routers did and started asking what life would look like if all tech stocks halved in value. The structured credit market has yet to reach this moment of clarity. As is typical when the sky falls in, many specialists, buried by complexity, point to the impossibility of generalising about the weather.
It is true that in terms of the vintage and profile of the underlying collateral, and the priority of claims on it (subordination), a dazzling range of permutations exist for collateralized debt obligations (CDOs). And the $23bn of sub-prime write-offs so far from the three banks worst hit suggest intellectual chaos: relative to their remaining exposure to “super-senior” CDOs, UBS wrote down 8 per cent, Merrill Lynch 41 per cent, while Citigroup’s guidance is 19 per cent.
Those who want to see the forest for the trees have two options for estimating total losses. The first is a “bottom-up” approach. Moody’s Economy.com takes the universe of risky mortgages (sub-prime, Alt-A and some jumbo loans) then assumes an economic slowdown and a 12 per cent fall in house prices from their peak. This generates a roughly 10 per cent loss rate, or a $225bn hit, mostly suffered by securitised products.
The alternative is to try to “mark to market” the known universe of mortage-backed securities, using the quoted ABX indices. According to RBS Greenwich Capital, this points to a $238bn hit for subprime and Alt-A. The Bank of England, using a similar approach, got to $100bn as of October 15, but the declines in the ABX indices since then suggest its estimate could now approach $200bn.
What conclusions can be drawn? First, mark-to-market prices imply a gloomy but realistic fundamental prognosis for mortgage losses. Second, sub-prime write-offs of $28bn for the eight big investment banks that have made disclosures are the tip of a $200bn-plus iceberg. The investment banks themselves may take more hits, but it is time for the insurance companies and commercial banks which bought big slugs of CDOs to face the music.
Copyright The Financial Times Limited 2007
The beginning has not yet ended.
The Credit Freeze Is Spreading Globally
London -- The global credit crunch is spreading, adding commercial and residential property in Britain and beyond to its list of victims.
On the face of it, a prime London office building with an A-list investment bank tenant and a house repossessed from a subprime borrower in California may have little in common.
But such has been the force of the re-pricing of credit that properties of all sorts in many places have become markedly more difficult and expensive to finance over the past month.
The transmission mechanism is not just lenders pulling in their horns from property, but an unwillingness of banks to lend to each other that is driving up the cost of money for all.    Read the full story.
     Please answer the following survey.
 
Please check your major sources of financial news. Daily Newspapers, (NYT, USAToday, etc.)
 Wall Street Journal
 CNBC
FOX Business News
 Bloomberg Business News
 Internet sites
Others:
About how many hours during an average day do you sit and seriously watch CNBC? Rarely
 Only on a big day in the markets
 Some but less than 1 hour a day
 About 1 to 3 hours a day
 Over 3 hours a day
 The TV in the area is often tuned to CNBC, but I seldom watch.
The global credit and confidence crisis will be contained by a combination of sovereign funds, wealthy investors, organizations including the US Federal Reserve, the ECB, and the Bank of England before it does long-term & widespread damage. Agree
 Disagree
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