The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster
Comment: The above article (which requires a subscription to read beyond the introduction, is the basis for the following analysis.
U.S. recession: A classic 12-act tragedy
Page-turning plot reads like Shakespeare, driven to dramatic climax
The 12 steps:
- Home prices will fall 20% to 30% from the peak
- Prime and near-prime mortgages losses ($ 300 Billion more!)
- Consumer debt defaults will increase sharply
- The credit insurers rescue package is insufficient
- Commercial real estate loan market will deteriorate
- Some large banks with heavy mortgage exposure will fail
- Banks' losses grow as asset values drop further
- Once the recession gains speed, expect corporate defaults
- Unregulated 'shadow banking system' facing huge problems
- As recession spirals out-of-control, stock markets drop again (in a typical U.S. recession the S&P 500 falls about 28%)
- Credit crunch will dry up liquidity in many financial markets
- Massive global recession spreading, spiraling down
Conclusion: Can anyone stop this classic Shakespearean tragedy before the dramatic climax? Probably not, says Roubini.
Another summary article: Martin Wolf of the Financial Times on my "12 Steps to Financial Disaster"
My fear is summed up in this Chris Farley quote: "you'll end up living in a van, down by the river"