That would be a first! but unfortunately it was from Alistair, not me. (Welcome back Alistair.)

I can't say I agree with this though:


Yes it will, but some will have to put off buying the new Merc until next year, while others will have to put off buying clothes for their children until next year.

Thank you!


That may seem to be more or less true right now, but I suspect (as Milly seems also to do) that such differences may well be very short-lived unless there are sufficient currency / stock / derivatives etc. speculators of sufficient shrewdness to take advantage of what is happening - and even that is by no means certain. Mercedes-Benz may not even be in production by this time next year. What perhaps bothers me more than the here and now and immediate future financial woes is that this time around there may in fact be no workable, let alone sustainable, solution to be found; already the Wall Street crash and the Great Depression that followed it are be spoken of as wealthy times by comparison to what we may now face.

I'd agree with that on the whole, Richard.  Though I'm far from the position of choosing when to buy a new Merc (or indeed of being a high earner with a massive mortgage and dependants and a great deal to lose) I'm fortunate at the moment with a secure job at a major utility company, a decent wage and reasonably low essential outgoings.  This thread on "my" other forum makes for sobering reading - it was started in early 2006, and many of the original posters have been posting on there throughout the economic shifts that have taken place since:

If things get tougher?

I'm disinclined to feel too sorry for myself just yet when I read the reports of increasing hardship for families such as some on here, like the young mother whose family was already living hand-to-mouth prior to the credit crunch despite having some of the most efficiently and inspiringly frugal household management skills I've ever encountered.

Until such time as I personally get directly and dramatically affected by the economic crisis, all I can do is employ common sense and prudence and remember how good I've got it at the moment.

I think that there is more than a little truth in this; indeed, some of what has of late distinguished (though not perhaps so clearly been seen to distinguish) some of the haves from some of the have-nots it that the former have until very recently been able to borrow a lot more than the latter to fund their cars, homes, private education / healthcare, inheritance and other tax planning (and the yachts, private planes and holiday homes in some cases as well) whereas in the not too distant past such folk would rarely have had to resort to much if any borrowing for anything like so much of this kind of expenditure. This kind of thing, however, is becoming more and more difficult for many such people who have become accustomed to being able to raise such borrowings; I know, for example, of a fellow whose gross annual income is approximately £1.1m of which at least half derives from salaries and most of the remainder from other work-related sources (rather than from investments) yet whose recent attempts to secure a £900,000 mortgage on a property considered still to be worth in excess of £2.2m even in today's parlous housing market came to nought - and no, he doesn't work for a bank, stockbroker or insurer!

I'm very fortunate not to have a mortgage myself, but my children do. This house is already full!!! 

Seriously though, I've just found this on my homepage:-

How banks depend on AIG
Robert Peston 16 Sep 08, 04:40 PM Ken Lewis, the chief executive of Bank of America, said yesterday that "I don't know of a major bank that doesn't have some significant exposure to AIG".

So AIG's need to raise billions in new capital to shore itself up has sent shockwaves through global markets and helped to undermined the share prices of many banks.

But how exactly are banks "exposed" to AIG?

Light is shed by an insightful bit of research by Sandy Chen of Panmure Gordon.

He has found the following paragraph in AIG's US regulatory filing:

"Approximately $307bn (consisting of corporate loans and prime residential mortgages) of the $441bn in notional exposure of AIGFP's super senior credit default swap portfolio as of June 30, 2008 represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than risk mitigation. In exchange for a minimum guaranteed fee, the counterparties receive credit protection with respect to diversified loan portfolios they own, thus improving their regulatory capital position."

If you managed to read to the end of that, your reaction is probably "you what?"

Well, I'll tell you what.

AIG is saying here that it has insured $307bn of corporate loans and prime residential mortgages that are on the balance sheets of banks, mostly European banks.

The banks have bought this insurance to protect themselves against the risk that these loans would go bad, that borrowers would default.

Their motive for doing so was to reassure their respective regulators - such as the FSA for UK banks - that these loans are of minimal risk.

And the benefit of doing that was that they could lend considerably more relative to their capital resources.

But if AIG is in trouble, then doubts arise about whether it would be able to honour the financial commitments it has made through these insurance contracts (which, for those of you who like to learn the lingo, are called super senior credit default swaps).

In fact, in a wholly mechanistic way, the downgrades of AIG's credit rating that we saw last night automatically increased the perceived riskiness of loans made by banks that have insured credit with AIG.

Which means those banks' balance sheets become weaker - and that could mean that they'll be forced by their regulators to raise additional capital.

So there's a widespread view among bankers that the US Treasury and the Federal Reserve simply can't allow AIG to fail, in the way that they felt that they could allow Lehman to collapse into insolvency.

If AIG went down, a number of banks' balance sheets would be mullered - there would a dangerous risk to the stability of the global financial system.

Or to put it another way, AIG is so pivotal in the global financial system, it can't be consigned to the dustbin of history in a precipitous way.

PS. For those of you who currently have the willies about HBOS, its exposure to AIG is not life threatening.

What's currently doing for HBOS's share price is blindingly obvious: it provides 20% of all UK residential mortgages; the UK housing market is the major vulnerability of the UK economy; if there's a sharp rise in the number of homeowners defaulting on their mortgages, HBOS would incur significant losses, especially on self-cert, buy-to-let and loans with a high loan-to-value ratio.

But HBOS has recently raised £4bn of new capital to cushion itself against the impact of just such a debacle.

So there is more fear than reason underlying the success of the short-sellers in driving down HBOS's share price - although the short-sellers will claim a modest victory in the decision by Standard & Poors to lower HBOS's credit ratings by a smidgeon.

But HBOS's ratings remain pretty strong. And the rating cuts shouldn't lead to a sharp increase in the cost of its finance or to an exodus of those who provide that finance.

And then there was this :-

Credit crunch a year on: The losers 
By Gavin Stamp
Business reporter, BBC News 


Millions of people are worse off than a year ago due to the global credit crunch.

 
Bear Stearns' plight brought home the seriousness of the situation

Those feeling the pain range from anxious homeowners on both sides of the Atlantic to harried stock market investors and worried employees of companies caught in the headlights of a slowing economy.

The effects have not just been felt in people's pockets.

For bank bosses, regulators and politicians, the damage inflicted has been to their reputation for competence rather than financial security.

So who has lost most from the worst financial crisis in a generation?


BANKS
However you look at them, the figures remain startling.

The losses incurred by Wall Street's biggest banks and a posse of Europe's leading financial institutions run into the many billions.

Total bank exposure to the US sub-prime mortgage market, whose collapse infected wider credit markets and triggered an almost overnight liquidity drought, is still far from clear.

 CREDIT CRUNCH: 9 AUGUST 2007
Short-term credit markets freeze up after French bank [edit: silly party] Paribas suspends three investment funds worth 2bn euros
The bank cited problems in the US sub-prime mortgage sector
During the following months, US and European banks report losses totalling hundreds of billions of dollars
The European Central Bank pumps 95bn euros into the eurozone banking system to ease the sub-prime credit crunch
The US Federal Reserve and the Bank of Japan take similar steps

The Federal Reserve has put the cost to the bottom line of banks and other lenders of their sub-prime misadventures at $100bn.

Goldman Sachs has said the figure could be as high as $400bn while the OECD has put an upper limit on the damage of $420bn.

Taking into account other failed mortgage loans, devalued mortgage-backed securities and general bad debts, the International Monetary Fund said potential losses could top $945bn.

Looking back in 50 years time, the names of Northern Rock and Bear Stearns are likely to remain indelibly linked with the crisis when other details have faded.

The respective rescues of the two firms, although very different in cause and execution, highlighted the extent of the threat to the entire banking systems in the UK and US.

Both companies were irretrievably damaged by their financial difficulties while other firms suffered grievous, if not terminal, injuries.

 
Stan O'Neal left Merrill Lynch after big losses, one of many bosses to go

Switzerland's UBS admitted it would take up to three years to recover its reputation for financial prudence after chalking up losses of $38bn.

Its chairman Marcel Ospel resigned, joining a long list of illustrious banking names to fall on their swords as the losses mounted.

Others to pay the price with their jobs - albeit with large payoffs - included Stan O'Neal (Merrill Lynch), Charles Prince (Citigroup), Martin Sullivan (AIG), Ken Thompson (Wachovia), Zoe Cruz (Morgan Stanley), Joseph Gregory (Lehman Brothers) and Adam Applegarth (Northern Rock).


HOMEOWNERS
US homeowners, arguably, have had to endure the most misery over the past year.

As the value of their homes plummeted further, thousands found themselves in negative equity and, worse, unable to meet their mortgage payments.

Despite government assistance to help people stay in their homes, the wave of foreclosures which triggered the wider credit crunch showed no sign of slowing a year on.

 
There has been little cheer for either sellers or buyers in the past year

According to online foreclosure marketplace RealtyTrac, the number of foreclosure notices in June topped 250,000 for the second month running and was 53% above June 2007.

Worse still, bank repossessions hit 71,000 in June - up an alarming 171% on a year earlier.

Those living in California and Florida - scene of a building boom in the early part of the decade - have been worst hit, accounting for 40% of total foreclosure notices in June.

Government officials pointed out that only 2% of total homeowners were losing their homes but this proved little comfort to those uncertain about their futures.

In the UK, repossession levels also rose but nowhere near as fast.

Homeowners had little to celebrate as they watched house prices suffer their steepest month-on-month falls since the early 1990s.

At the same time, the 1.3 million people renegotiating their mortgages saw the choice of deals shrink dramatically and average borrowing costs rise as banks grappled with high wholesale lending rates and falling profits.

Prospective buyers weren't much better off as the last 100% mortgage bit the dust, average two-year fixed-rate deals hit 7% and new mortgage lending fell to a 15-year low.

Mortgage brokers, estate agents and house builders shed jobs as demand began to dry up.

This property malaise was not just confined to the US and UK.

The recent housing boom in Spain imploded spectacularly while a collapse in prices in Ireland dented confidence about its future economic prospects.


INVESTORS
Those owning shares in banks and mortgage lenders have not had a happy year.

More than $430bn was wiped off the combined stock market value of the top 10 US investment banks between June 2007 and March 2008, while mortgage lenders lost $162bn of their total value.

This situation has worsened since then and disputes at individual firms - such as Lehman Brothers and UBS - led to shareholder lawsuits.

 US HOME REPOSESSIONS
June 2008: 71,563
May: 73,794
April: 54,574
March; 51,393
February: 46,508
January: 45,327
December 2007: 48,854
November: 46,438
October: 53,605
September: 39,850
August: 43,141
Source: RealtyTrac

In the UK, the bank sector has been friendless with falling share prices imperilling fund-raising efforts by the likes of HBOS and Bradford & Bingley.

The credit crunch has made life less rosy for most market players, although "short-sellers" and canny, long-term investors like Warren Buffett have prospered.

But fears of a prolonged global slowdown and squeeze on company profits has led to sustained selling on both sides of the Atlantic.

London and New York recently became "bear markets", having lost 20% of their total value over the past year as investors shifted into commodities and other investments.

Less tainted by the credit crunch, Asia has not escaped these market jitters with Japanese and Indian markets among those joining the global retreat.


POLICYMAKERS
The financial trauma of the past year presented unprecedented challenges to politicians and regulators around the world.

Central bank governors came under fire as people looked for scapegoats for regulatory failures and lax lending policies seen to have fuelled an unsustainable credit boom.

 
Steering the economy has become a hair-raising job for politicians

Bank of England Governor Mervyn King took plenty of flak while his deputy Sir John Gieve is taking early retirement after criticism of his handling of the Northern Rock affair.

Federal Reserve boss Ben Bernanke emerged a little less bruised after being seen to take decisive action to rescue Bear Stearns and stop the US economy from tipping into recession.

But US Treasury Secretary Henry Paulson and UK Chancellor Alistair Darling struggled to counter the impression that they were no longer in control of events as the political fortunes of their governments took a sharp dip.

Speaking last month, the two men heralded Anglo-American co-operation to rebuild trust in the banking system but admitted that mistakes had been made before and during the crisis.





 

Everything you say here is (a) true and (b) evidence that market capitalism doesn't "work".