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OT – Is this the death rattle for the TBTF banks?

Off Topic, caus’ I’m speculating that this is gonna hurt, big time!

John Mauldin thinks his current, and next week’s, newsletter is/will be one of the more important letters he’s written in the last ten years. There’s trouble, he says, hidden in those pools of subprime debt that have not gone away. And his early take is that it will be a disaster for investors. Get ready for a real catfight! The big fish go down this time, but my fear is that we all will ultimatley bare the pain of loss. I’m talking pensions, insurance, the nesteggs we thought were so secure.

The Subprime Debacle: Act 2

Mauldin’s current letter takes a look at the housing market, the mortgage foreclosure debacle, and what he claims is “the real problem lurking in the background”. He calls it the second phase of the subprime debacle. This debacle, he says, is not the mortgage foreclosure issue, as serious as that is. The problem appears to be the confluence of a bank credit crisis in the US and a sovereign debt banking crisis in Europe that could lead to another full-blown world banking crisis.

All those subprime and Alt-A mortgages written in the middle of the last decade were packaged and sold in securities. They have had huge losses. (T)hose securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. It could create the potential for some banks to have real problems… And all this, he says, is coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008?

Hell Yeah!

http://www.investorsinsight.com/blogs/thoughts_from_the_frontline/archive/2010/
10/15/the-subprime-debacle-act-2.aspx

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