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POPS12 Steps to Economic Meltdown - Nouriel Roubini
Seventh, the banks losses on their portfolio of leveraged loans are already large and growing. The ability of financial institutions to syndicate and securitize their leveraged loans - a good chunk of which were issued to finance very risky and reckless LBOs - is now at serious risk. Eighth, once a severe recession is underway a massive wave of corporate defaults will take place. Ninth, the "shadow banking system" or more precisely the "shadow financial system" (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that - like banks - borrow short and in liquid forms and lend or invest long in more illiquid assets. Tenth, stock markets in the US and abroad will start pricing a severe US recession Eleventh, the worsening credit crunch will lead to a dry-up of liquidity in a variety of financial markets, including otherwise very liquid derivatives markets.
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POPSHow can AIG lose 10B ? As you might know there are regulations that prevent insurance companies from gambling most of your Insurance premium on risky assets in order to make sure they'll be able to pay when disaster will strike. thats where subprime CDO's (and other wierd investment "vehicles") come into play (by making a risky asset look much less risky AIG can make more money on your insurance dollar). I loved this comment so much i clipped it and a background story in my prev clip, hope you enjoyed :)
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POPSCredit Crunch If it's getting harder for KKR's Henry Kravis to borrow money on his own terms, imagine what the subprime mortgage meltdown is doing to the rest of us. -- Liz Moyer
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POPSBear Stearns /CDOs The FT's Lex column tackles explaining the difficulties of pricing CDOs in the wake of Bear Steans' disclosure that a meltdown in the subprime mortgage market has made the assets from two of its flagship hedge funds almost worthless.
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