Category Archives: Doomsday scenarios

Is a GM Bankruptcy Inevitable?

Markets in Asia are staging a peppy rebound rally on the assumption that US rescue of the Big Three is in the cards. No one seems to be taking seriously the possibility that bankruptcy is inevitable for GM and perhaps Chrysler. And were that to take place, opinion is sorely divided as to what that […]

Auto Bailout Compromise Fails

We had doubted the earlier Bloomberg report claiming a deal had been cinched, since an hour later, there was no corroborating report. So now a rescue falls to Paulson. From the Washington Post: An eleventh-hour effort to salvage a proposed $14 billion rescue plan for the auto industry collapsed tonight as Republicans and Democrats failed […]

GM Hires Advisors to Prepare for Possible Bankruptcy Filing

The Wall Street Journal story on GM engaging a team of bankruptcy advisors stresses that this move is in part political, to underscore that the top US automaker really is at the end of its rope. Most observers assume that if Congress failed to authorize a rescue bill, that the Treasury would uses it TARP […]

"The western financial system we knew has collapsed"

Willem Buiter is never one to mince words, and today his message is that the financial system is not operating: In a decentralised market economy, financial intermediation between economic agents with financial surpluses and those with financial deficits (or, more accurately, between economic agents who would like to run financial surpluses and those who would […]

On the Fed’s Shift to Quantitative Easing

A nice article in the Financial Times by Wolfgang Munchau, “Double jeopardy for financial policymakers,” discusses the Federal Reserve’s move to quantitative easing. There has been some mention of this in the media, as a Bloomberg story from last week indicates, but it hasn’t gotten the attention it deserves. The use of quantitative easing is […]

China’s Smoot Hawley?

Comparisons to the Great Depression and to other nasty past downturns (Panic of 1873, anyone?) are coming fast and furious these days. But one thing that continues to surprise me is the frequency with which the US in 2007-2008 is being compared to the US of 1929-1930. I’ve mentioned in passing that China is in […]

The Ill-Considered Problem of a GM Bankruptcy

Let us start with the basics. Like it or not, for GM to go under risks a disaster of colossal proportions. Although Lehman, the biggest bankruptcy in US history, appeared to have an orderly settlement of its credit defaults swaps, the disruption occurred before-hand, as protection writers had to post additional collateral PRIOR to settlement. […]

Yet More Trade Finance Worries (Not for the Fainthearted)

Readers may know we have been concerned about the dramatic fall in shipments of basic materials, as reflected in the collapse of the Baltic Dry Index. This in turn, as we have also stressed, is in large measure to the difficulty of obtaining trade finance, in particular letters of credit. A very good post at […]

"The first casualty of the crisis: Iceland"

For those of you who only caught bits and snippets of the Iceland crisis, this VoxEU post by Jon Danielsson provides a useful recap. And if you are familiar with broad outlines of the unravelling, the piece also recaps the policy errors that fed into the crisis. The article focuses on the role of high […]

CDS Pricing in Increasing Treasury Default Risk

We have noted that Treasuries (and the dollar) are the remaining bubbles, although some doubts are starting to surface on the Treasury front. Paul Amery at Prudent Bear gives a good recap: The tectonic plates underlying the whole superstructure of debt have started to shift. On the surface nothing remarkable is happening – the 30 […]

Confirmation of the Role of Financing Difficulties in Collapsing Trade Volumes

One of our pet themes in recent weeks is that the fall in trade traffic, indicated and possibly overstated by a dramatic fall in the Baltic Dry Index, is due at least in part to difficulties in arranging and getting other banks to accept buyers’ letters of credit. For those new to this topic, international […]

Roubini Foresees Possible Market Shutdown

After the Fed, ECB,, Bank of England, and other central banks took unprecedented measures over the last month to restore liquidity and recapitalize banks, Nouriel Roubini sounded slightly less gloomy. He had deemed that the authorities has avoided a systemic financial meltdown, but a nasty, protracted recession was in the offing. It appears that Roubini […]

IMF Warns of Systemic Meltdown

Reader Saboor pointed to a BBC report on grim words from IMF chief Dominique Strauss-Kahn about the state of the global financial system; reader Dwight later sent a link to a bit more detailed Reuters report. First from the BBC, “IMF in global ‘meltdown’ warning“: The world financial system is teetering on the “brink of […]

International Trade Seizing Up Due to Banking Crisis (Updated)

I have been more than a tad concerned about near-paralysis in the money markets and imploding equity prices. But this e-mail, from a well connected international investor not prone to alarm or (normally) the use of capital letters says that the banking crisis is staring to bring international shipping to a halt. By way of […]

Roubini Warns of Possible Systemic Meltdown, "Severe Global Depression"

Nouriel Roubini has been almost freakishly accurate in calling the progression of the credit crisis, with his only major failings being predicting its onset on the early side and his fondness for an apocalyptic writing style, which now seems fully justified. Even by the standards of his alarming missives, his latest is truly troubling. Roubini […]