Subprime: The Ugly American Hits Europe

[Joanne98]

Source: Business Week

Financial markets' tentative optimism on Aug. 8—when investors appeared to be less worried about the effects of credit-market contagion from the U.S. subprime crisis on the global economy—vanished quickly one day later. The main players in the latest drama were a money-center French bank, the European Central Bank, and the Federal Reserve.

Cracks in the market's calm façade began to appear after a unit of French banking group BNP Paribas (BNPP.PA) said it temporarily suspended three funds with U.S. subprime exposure as a result of a current lack of liquidity in the market, according to news reports. Equity indexes in Europe—and stock futures in the U.S.—fell on the news.

"The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating," said BNP Paribas in a press release. The bank said it would suspend three funds, Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia, with a total value of around €1.5 billion ($2.065 billion).

Calming the Waters
Another, bigger, shoe dropped later Thursday. The European Central Bank, in a move to calm market nerves and enhance liquidity in the European money markets, said it planned "a liquidity-providing tender of one-day securities" totaling €94.8 billion ($130.5 billion)—basically, an injection of available funds into euro zone money markets to soothe frayed market nerves. In the wake of the BNP news and other gnawing concerns over credit tightening, money-market rates had shot up Thursday morning in Europe—from the ECB's target zone between 4.0% and 4.1% to nearly 4.6%.




Read more: http://www.businessweek.com/globalbiz/content/aug2007/gb2007089_266456.htm?chan=globalbiz_europe+index+page_top+stories

[BlueJazz]

1. This afternoon I listened to a long report on this subject and how...

the European Governments are going to "Bail-Out" the Lenders and Banks.

Quite frankly...if they were stupid enough (and Mismanaged enough) to invest in the housing Bubble while a pack of idiot Republicans are in charge over here, then they deserve all the bad loans/luck they receive.

[redqueen]

2. What's with that title?

The problem isn't only in this country. It's all over...

[Tempest]

6. The problem is centralized to the U.S.

And the subprime market.

temporarily suspended three funds with U.S. subprime exposure as a result of a current lack of liquidity in the market

[redqueen]

9. Just because we're the first to see the cards tumbling

doesn't mean the same situation doesn't exist in most other "first-world" countries.

[CountAllVotes]

10. yep, it is a trickle down alright

and don't you think that many of these gigantic brand new homes being built in various places overseas (like parts of the EU) are ARM only loans perhaps?

I believe that is the case.

We are a piece of the bubble that just went pop, I agree. Stay tuned ... lots more to come is my prediction.

:dem:

[redqueen]

11. It's not a matter of faith, requiring belief. It's a fact.

Well documented for years now, actually.

http://www.nytimes.com/2005/03/25/business/25boom.html?ex=1186804800&en=555648ee61d51fa8&ei=5070

[Tempest]

13. Your cite is U.S. specific

The only mention of other countries is a one-line mention of the 1990s.

[redqueen]

14. Actually the author mentioned in there

puts the "worldwide" problem in the title of his book, IIRC.

Anyway, here:

http://www.google.com/search?sourceid=navclient&ie=UTF-8&rls=GGLG,GGLG:2005-29,GGLG:en&q=global+real+estate+bubble

[Tempest]

19. But in the article where he talks about his book, he only mentions the U.S.

And the worldwide problem is predicated on the U.S.

[redqueen]

20. ...

A new edition of Mr. Shiller's book will be published next month. The cover promises an "analysis of the worldwide real estate bubble and its aftermath."

[sam sarrha]

32. bullshit is not trickling down to the poor it is a cascading Tsunami

[Tempest]

12. The subprime market is unique to the U.S.

The only references I can find for other countries go back to the U.S. subprime market or to parallels to Japan's market in the 1990s.

Can you provide cites about the same situation in other countries?

[redqueen]

15. How hard did you look?

http://www.ireland.com/newspaper/breaking/2007/0704/breaking49.htm
http://ftalphaville.ft.com/blog/2007/08/06/6365/is-uk-subprime-going-the-same-way-as-the-us/
http://www.forbes.com/markets/2007/07/05/subprime-fsa-britain-markets-equity-cx_vr_0705markets24.html

I searched 'subprime ireland' and 'subprime UK'.

[jordi_fanclub]

16. It's a "little" (completely) different story...

From one of your links:

"In particular the problem by which U.S. lenders increase their exposure by “risk layering” does not happen to the same extent in the U.K, she said. In addition, unlike the U.S., British providers do not offer rolling rates, where customers start off on very low rates of interest, which then rise, making it hard for customers to make repayments."

[redqueen]

17. Official sources, yes...

I've learned a thing or two from listening to ours over here, thanks. :P

[Tempest]

18. Not one of your cites indicates a problem like the U.S. has

In fact, the Forbes cite says only .12% in the UK are starting to see trouble.

[redqueen]

21. I'm sure it was only 12% here, too, at one point. n/t

[jordi_fanclub]

23. You mean... zero-point-twelve don't you?

"For those that missed the hysterical headlines in the weekend papers, DK explain that the problem is not the absolute number of repossessions. That is rising, but at 0.12 per cent of all mortgages outstanding in the first half is still at a low level."
http://ftalphaville.ft.com/blog/2007/08/06/6365/is-uk-subprime-going-the-same-way-as-the-us

EDIT:
But the problem it's much more complex and goes beyond real estate. Just ask VISA...
The consumer credit habits are completely different in US and in Europe. And so the fiscal policy.
As example in a not yet explored option, the horrendous taxes in Europe can be eased to provide a cushion.
This alternative isn't available in the current US meltdown; as you know the US is the borrower, not the lending... at a pace of $2+ billions/day!

[redqueen]

24. Yup... typo.

"so far so good" ain't so encouraging to me... I'm sure others are more than willing to be far more optimistic, though.

:hi:

[Zynx]

35. The banks are holding CDO's based on the US mortgage market.

[screembloodymurder]

3. My prediction: Bush won't come back from vacation.

The market will collapse, he'll resign, and Cheney will be our next President.

[WorseBeforeBetter]

5. Then...

"state of emergency" ... and no November '08 elections.

[zehnkatzen]

4. When America Sneezes, The World Catches Cold...k&r

We may not be the world's most dynamic economy anymore, but when ours goes down, it'll take a lot of the rest of the world with it.

I see that Eurobusiness has its head just as far up its backside as American business does.

Fools. Did they really think they'd be inuslated. Globalization is a b&tch, you guys, innit?

[On the Road]

7. This is an Interesting Combination of Forces

European bankers being by nature tighter and more likely to trigger a recession, China and India still smokin' their economies, and the US in the middle, with monetary and fiscal stimulus weighed down by financial and real estate sector problems.

[ohio2007]

8. That'll teach em to loan money to american home buyers. They would have been

better off loaning money to French/Euro homebuyers.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNIJ.UO9Pzxw&refer=worldwide

[CountAllVotes]

28. bingo!

from your link above:

>> Blocking Withdrawals

The 10 largest holdings of the BNP Paribas ABS Euribor fund on March 29 included bonds backed by U.S. mortgages to good- credit borrowers who could pay some interest by increasing their balances, and securities backed by U.S. subprime mortgages and risky U.K. home loans. Other holdings included debt backed by commercial properties in Singapore and U.K. credit-card receivables, according to information compiled by Bloomberg.

Traders are reluctant to bid on securities backed by risky mortgages because they are difficult to sell on, making it hard for asset managers to value assets held in some funds. With no valuation, investors can't buy or sell units of the funds because they don't know what they're worth.

Blocking investors from withdrawals ``was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris. ``If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''

:dem:

[19jet54]

22. American history on Recessions/Depressions

Are we over due - Greenspan said there is a 1 in 3 chance for a Recession this fall? Are the markets outpacing inflation? Are Americians saving or over-extending? Did housing values deflate for the first time since the 1920s? Or is this all just a little correction to some really bad policies & decisions on lending?

:popcorn: :popcorn: :popcorn: :popcorn: :popcorn: :popcorn: :popcorn: :popcorn: :popcorn: :popcorn:

Time will tell!

[redqueen]

25. Regarding recessions and depressions...

watch the movie linked in my sig... it touches on that subject. (towards the end... 1st parts are about religion & war, IIRC)

Would be curious to know your thoughts.

[19jet54]

26. I'm part of the AARP crowd...

I don't know what you mean by "linked in my sig"?

[redqueen]

27. Sorry!

There's a hyperlink to a url in my signature section... "this should be required viewing"... it's a feature length film dealing with some pretty 'out there' ideas... worth considering at least, though, IMO.

http://zeitgeistmovie.com

:hi:

[19jet54]

29. Not much...

... most of the concepts presented in the film are not new, unless you were born yesterday; but I did detect a slanted bias (yea duh!)

I think I prefer the "Black Swawn" theory over this - Ref Charlie Rose guest for book.

Thanks for the laugh!

[redqueen]

34. If they're not new concepts, people who know them already sure are stupid

for continuing to pretend.

I'd say you're welcome but I read that as a slight, so... hope that's not how you meant it. Have a good day either way.

[cliss]

30. "Fly on the wall report".

How bad is it really? Just a temporary blip?

Try thermonuclear meltdown. I suspect the bankers are going through a meltdown right now, unable to figure out what to do next. Think of the men that opened up the Ark of the Covenant in the movie 'Raiders of the Lost Ark'. We just supplied a MASSIVE blood transfusion put into the system today, it was a staggering amount. Please realize, we can't do that indefinitely. We simply cannot prop up a market that's going to go down regardless.

Big Storms on the Horizon
Millions of foreclosures - September
It's my understanding there will be around 7 million U.S. homes moving toward foreclosure in September. Is there any truth to this? Apparently this is when the ARM mortgages will be readjusted.

FNMA, GNMA
I've also read these 2 quasi-government entities are in dire trouble. Kinda like Enron. The problem is, we've had so many scandals / crises that very few people have paid attention to this. But there have been article about it. Very, very strange stuff going on. Apparently, they've been UNDER-reporting earnings. Unbelievable, just the opposite of Enron. But I've read they're both nothing but empty shells. But I've read that once the truth comes out about these 2, they will pull the entire real estate market over the cliff with themselves.

Anyone care to take on these 2 topics?

[Karenina]

33. Hmmm...

[sam sarrha]

31. the last First Bu$h ruin the Savings and Loans.. now this.. how do they profit from this.? or is it

just incompetence.. thinking anything Reagan would do is sacred and profitable

[CGowen]

36. Today the ECB pumped 61 billion € more into the market

http://www.handelsblatt.com/news/Default.aspx?_p=200053&_t=ft&_b=1307205


the money from thursday had to be paid off on friday