Barrons: Roubini Predicting $2 Trillion in Debt-Related Losses

Posted on August 2nd, 2008 in Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

This is a very quick and good read. I will dig into it more later because there are some parts I would like to extrapolate on, but for now here is the link.

For those of you without a Barron’s subsrciption, go to TickerForums…

21 Responses to “Barrons: Roubini Predicting $2 Trillion in Debt-Related Losses”

  1. Barron’s requires a subscription to read the linked article. 🙁

  2. sorry, here ya go.

  3. You know, it isn’t rocket science to figure this ponzi scheme had massive ramifications on our (the World) economy. I’m not shocked at all to hear Roubini say we’re in the 2nd inning of this implosion … I am shocked when I hear smart, say real stupid things, like, “we’re near a bottom”.

  4. 2 Trillion is a big number. The question is: how much will it affect me, the average guy if the US Gov’t bails everybody out and raises personal income taxes?
    So here’s the rough math:
    300 million people in the US.
    $1.8 Trillion Fed backed (taxpayer) loss.
    $6000 loss for every man, woman and child in the US.
    Average household of 4 people. $24,000 loss per household. 5% interest rate or opportunity cost of funds. That equals about $1,200 of annual household finance costs. Since the lower 50% of 1040 filers pay 3% of personal income taxes, this means 97% of the tax burden falls on the top 50% of 1040 filers (AGI over $30,000). So if you make over $30,000 AGI, you would pay $2,400 per year for about 30 years. If interest rates go up, your debt payment would go up also.
    In conclusion, for 1040 AGI over $30,000 your personal tax rate would have to go up an additional 8% of AGI to a top FED rate of over 40%, CALIF state add 9.3, FICA add 15.3%. OUCH! For wage earners between $30,000 and $100,000 AGI that’s a 65% marginal tax rate! My wallet hurts already!

  5. There are 2 major causes to this catastrophe which will affect us all a few years from now, no matter how much we prepare.

    Cause #1. Assuming that economic events and prices and behaviors follow a bell curve (i.e. a Gaussian distribution) in their outcomes, when actually real life has much fatter tails, and

    Cause #2 Coupling this fallacy, which is the basis of ALL derivatives valuations models, with HYPERLEVERAGING.


  6. Mr Wizard, an large proportion (I would guess crudely at least half) of these losses are borne by non-US parties, through holding mortgage securitised bonds who will generally receive not a cent of tax payer assistance from the US or their own governments; so your number are excessive on those grounds alone.

    This giant Ponzi scheme was perpetrated mainly on foreign investors and will make investing in the US smell now since the US government has avoid at all opportunities in the last ten years all opportunities to regulate the crooked players (mortgage brokers, raters* investment banks).

    (*’In one email message, an S&P analyst called a mortgage or structured finance deal “ridiculous” and wrote “we should not be rating it.”
    In another email, an S&P manager said ratings agencies were helping to create an “even bigger monster — the CDO (collateralized debt obligation) market. Let’s hope we are all wealthy and retired by the time this house of card falters.’)

  7. Wow….check out this article Mr. M–

    Didnt realize all these stores were closing nation-wide. Probably not something we are going to get from the mainstream media….(scroll down for list)

  8. “I don’t want to name names…. the Wachovias and Washington Mutuals of the world.” LOL

  9. Mikey, I just got done reading the article as well… He did basically just say that WAMU is going under didn’t he? I have been following Mr. Roubini’s comments for years now and he is always spot on!!! As a result, I must believe what he is saying to the letter unless or until he is proven wrong, which has not happened in the past few years in my opinion…

  10. Response to G Cox:

    Agreed, about half of the debt is nominally held overseas.
    But I ask you this, how many of those offshore CDO’s, FNMA and FDMAC certificates are collateralized 100 cents on the dollar with huge non-recourse LOC’s at FDIC insured US Banks?

  11. And how many of these offshore CDO’s were hedged by off-book derivatives that will eventually show up under changes to FAS 140 and FIN 46R?

  12. If you spent a million dollars a minute starting at the time Christ was born, you would NOT have spent a Trillion dollars yet.

    Conversely, if you had written bad checks at the rate of one million dollars a minute since the time Christ was born, you STILL would not have written a TRILLION dollars worth of bad checks.

    Two Trillion is a lot of money.

    Tony Buzan

  13. Tony-

    That spending $1M/min sounds a bit off:
    60*24=1440 min/day
    1440*365=525,600 min/year
    2000yrs * 525,600 min/yr = 1,051,200,000
    or 1.051 billian minutes have passed in 2000 years (assuming 0 = Christ birth)

    at $1K/min you’d be a touch over $1T

  14. dafox-

    You are correct. Sorry for the error. A corrrect way to phrase it would have been:

    If you spent a thousand dollars a minute starting at the time Christ was born, you barely would have spent a Trillion dollars by now.

    Conversely, if you had written bad checks at the rate of one thousand dollars a minute since the time Christ was born, you BARELY would have written a TRILLION dollars worth of bad checks by now.

    Two Trillion is a lot of money.”

    Sorry for the error.


  15. Muy estimates say that the losses from the credit crunch will by far exceed $6 trillion.

    Have a look at the following analysis :

  16. EternalOptimist, you are a self-deluding racist trying to pin this on Zionism.

    These type of statements take away from the simple fact that Banks had loose underwriting standards and got caught holding the bag when the market collapsed.

    I repeat, Zionists did not cause this crisis. So sober up, and stop spreading misinformation!

  17. 6 trillion. “Absaloutaly.” Don’t forget. The Credit Default Swaps are about to kick in. People still buying bank stocks should go get the head examined.
    Yes 6 trillion up in smoke is real possibility.

  18. So now we know what everyone on this site already knew for a long time, but the silly stupid Fed, our phony Treasurer, and apparently most of Congress and the Senate… Oh, and the President himself didn’t know!!!

    The Chicago Tribune is reporting that Fannie and Freddie together own 44% of the total foreclosures in this country as of March 31’st. In dollars this equates to $6.9 Billion, or lets just say $8 Billion if we count the rest of this year as well. With foreclosures mounting at a fierce pace this number is sure to explode even larger as we move along through the balance of this year. On average foreclosures lose 20% of value, but we have not dealt with this many before in this manner, so in reality that percent could climb to 30% or even 40% wouldn’t surprise me.

    Worst case at 40% losses we (the Tax Payers) would be looking at a $3.2 Billion dollar “Bail Out” The Tribune is claiming losses around $1.39 Billion will occur. I say it is somewhere right around the middle.

    TOTAL Tax Payer Funded “Bail Out” = $2 BILLION!!!

    Boy wouldn’t that make an excellent headline in the WSJ smack dab on the front page!!! It would certainly wake some folks up now wouldn’t it?

    Anybody have any thoughts on this and how we are going to pay for this as a country?

    New payroll taxes
    More hidden fees

    Like Bush said not all that long ago read my lips “No new taxes” we had Paulson saying “We won’t need to use this back stop” As I have said already on this site, there is a 100% chance we will have to use it. Any company that is insolvent will need assistance or they will go under. Time to pay up folks!!! Oh, and don’t forget to “Thank” your local Congress Men and Woman for this “Bail Out” Bill coming due. Don’t forget to “Thank” you’re local Senator for this “Bail Out” Bill coming due. The President is gone so that is settled already. Oh, lest I forget… please leave a note for your children’s, children’s, children telling them why they are paying for this. Please let them know in the note who you personally voted into office so they can correctly put the blame where it belongs. This next election could have a big influence on whether or not they want your picture hanging on the mantle or the dart board. Hey, you can’t blame them as they were innocent in all of this. You decided for them remember…


  19. Anyone who thinks they have ‘figured out’ the financial markets (Captain (Mike) Morgan, Karl D, ‘Mish’, ‘Houdini’ Roubini, etc.) are just setting traps for the Greater Fools. The financial markets are MANIPULATED AT WILL to go in whatever direction they want for as long as they want. Their objective is to BANKRUPT as many small investors as possible. The SHORTS as well as the LONGS will be squeezed at will until they have been sucked dry!

    Caveat Investor!

  20. Lately, the gold bugs have been taking it on the chin. When the markets are in their final stage of collapse, gold will be confiscated (again!).

  21. Just to clarify my post… that is the “Bail Out” price tag on Foreclosures only, and only to date.

    You know the troubled loans that Fannie and Freddie didn’t have on their books. The toxic garbage loans that we were told the GSE’s didn’t have any off.

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