http://www.cnbc.com/id/33477456#

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10301

Ouch.

Paper burns.

As for Aust, the govt being forced to buy rats and mice RMBSs is a sign something is wrong with the residential mortgage market – if not a sign of actual desperation (which is the case for Fannie/Freddie in the US, where they are jointly buying up every crap piece of residential paper in the forlorn hope of “saving” the mortgage market at the cost of the – bankrupt – taxpayer. But for how long?). And house prices in Oz have recently spiked up again (hardly surprising given the FHBG and buyers looking to lock in fixed interest loans).

Can we escape the US and the UK? What makes us so different? Employment. Which relies on exports and the continuation of construction/investment. But ultra low interest rates and govt meddling mess with the price mechanism making investment more risky/difficult to plan. And if China blows up our exports will die. And even if this doesn’t happen, if we get a recession due to too-high mortgage debt then the $A will tank and banks will find it difficult to rollover their debts. And then LT interest rates will spike.

All roads lead to Hell in fiat money madness. We either kill exporters with hot tsunami money (carry trade + high interest rates to choke off a housing bubble) or keep interest rates too low for too long and have a massive debt unwind in 5 years’ time when the housing bubble really bursts.

The only way out is Glass Steagall type regulation, and/or allowing gold as legal tender and/or abolishing central banking and/or breaking up of all TBTF institutions and/or outlawing FRB and/or confiscating all privately held gold and killing 10% of the population with vaccinations, war, or poverty through Depression (the “Roosevelt Solution”).

http://www.calculatedriskblog.com/2009/10/hutton-mervyn-king-is-right.html

But sometimes coming to the right policy can take so long, and the policy makers can be so slow and so stupid, the patient is already terminal and the cancer has reached advanced stages. Applying remedies that would have worked 10 years ago cannot work today. This is one of those occasions for both the US and the UK. And, perhaps, Australia.

“It’s too late baby, yeah it’s too late, though we really did try to make it. Something has died inside and I just can’t hide and I just can’t fake it….”

The point is that, provided most of our investment spending is soundly based, the income we earn from those businesses will service the interest on the money we’ve borrowed. But that’s just as well because, as Henry says, all the big economic developments we face – a much bigger population, climate change, the information technology revolution and the resumption of the resources boom – will require huge additional investment spending, guaranteeing continuing, even bigger current account deficits.”

http://www.smh.com.au/business/no-worries-mate-living-with-a-deficit-20091023-hdb3.html

Ross Gittins, almost sounding like a real economist. A lot of that borrowing has gone into residential mortgages. Which is a consumption item, not an investment item. One day, perhaps one day soon, Oz banks won’t be able to roll over as easily as they anticipated. Then we will see how robust their “stress tests” have been.

They are riding right on the edge right now. One wrong move on the timing of the investment cycle or the lending decisions made and one big Oz bank is going to go down. Big time. I hope to God they know what they’re doing. And their bets pay off. Because if they don’t the $A goes down and we all suffer.

Please dont give up your risk management job to become a uni teacher to our esteemed students. Pointing them in the direction of google scholar is like telling them to study astronomy by looking to the heavens at night.

Alternatively you could post your annual consultation hour.

what happened to “congratulations Goldman”. I think Andy “The Deregulator” regulated that post out of existence….???

Andy – did you do that after Goldman’s robbed taxpayer funds to play the markets and kep ALL that 3 billion profit it made from taxpayers money??

Andy…..?????

ABOM – you will give Bikuri stress. He just wants a bank job.

http://www.goldensextant.com/SavingtheSystem.html

Please get in touch-my email is mbikuri@gmail.com

I have found this website and this thread in particular very useful so please keep it up. I am relatively new to stress testing myself and I am wondering what are the major differences between Pillar 1 and Pillar 2 stresses at a quantitative level?

Cheers in advance