HELL To Pay

The Master Manipulators are spreading the good cheer that the worst of the write downs and credit crisis related losses are behind us. With the shock wave of the credit bubble poised to burst through every credit instrument known to man delusions and denial are at their highs.

The market has, obviously, taken the view that the worst of the write downs are behind us, and if anything it’s now just a macroeconomic problem we face. I think that’s dead wrong.

Dead wrong is right. All through the housing bubble these manipulators sold the economy’s soul to the devil and now there is hell to pay.

We’re now entering the phase where the macro impacts earnings, but also the stage where real cash losses start to hit the banks (subprime and Alt-A is primarily a mark-to-market issue, but HELOCs are going to be large, outright losses). Once WAMU, WFC, BAC and JPM start to get data through on how rapidly their HELOC portfolios are deteriorating, watch the losses pile up. I’m talking realised losses, not mark-to-market write downs.”

Bank of America and Washington Mutual have already seen the stark reality of rapidly multiplying HELOC losses when reporting Q1 2008 results.

Bank of America Corp., the nation’s biggest consumer bank, said losses on home-equity loans will be even worse than predicted three weeks ago, adding to evidence that more consumers are falling behind on debts.

The statement from Washington Mutual was equally severe.

The Seattle-based thrift reported $1.1 billion in bad home equity loans and lines of credit in the first quarter, up 35 percent from the same time the previous year, according to a recent regulatory filing.

Realized losses are real losses, like words spoken in anger they can never be taken back, only eternally regretted. For some banks that eternity of regret began when HELOC losses become apparent in the first quarter 2008, and as the credit crunch hardens others will find eternity come to a crashing end in insolvency.

The masters would have you believe in a fantasy a fairy tale, that the worse of the credit crisis is behind us. To believe that you would have to believe that all credit exposures are known, all possible effects predictable and that all further accounting will be clear. It’s not, I don’t and the credit crisis is no fairy tale. If things are going to get better, they are going to get much worse first.