Anatomy of a credit crunch (from Aug 05 2007)

[Green_Bear]

*  Assets become almost impossible to sell during a credit crunch, and trading books become ossified, with remnants of deals attempted years earlier remaining on them and clogging up liquidity. Bargain-hunters attempt to pick up equity and loan assets involved in the crunch at prices far below those of a year earlier, but the “bargains” are chimerical; most such assets end in bankruptcy as confidence never returns.
   
* Credit crunches don’t typically end quickly; their effects drag on for at least a couple of years. During that period, credit is very difficult to obtain and even well-run solvent companies can find themselves in sudden difficulties. It is impossible to predict which companies will be forced to declare bankruptcy, but major bankruptcies there will undoubtedly be. One difference from the 1970s is the increased importance of trial lawyers and aggressiveness of prosecutors; if 2001-05 is anything to go by, bankruptcies will be followed by prosecutions of the managements involved, sequestrations of their assets and generally lengthy prison terms. Jeff Skilling’s fate in the U.S. has not been all that different to Mikhail Khodorkovsky’s in Russia, although his prison is probably somewhat warmer than the latter’s Siberian incarceration. 
   
* Stock markets and real estate markets will go into a lengthy period of illiquidity and quiescence, with price drops far in excess of those currently expected. In a period when credit is almost impossible to obtain, valuation metrics that depend on the use of credit quickly become worthless. US business is far more leveraged than in 1973; its decline in value will thus be correspondingly more intense. Only liquid companies in the liquid countries of East Asia, particularly Japan, and maybe the Arabian Gulf states are likely to be fortified by the experience.  >>>>

Anatomy of a credit crunch
prudentbear.com/index.php/ar … rt_id=4712

[Green_Bear]

Global Credit Crash, July 12, 2007
youtube.com/watch?v=PIDEi7q6JrQ

Subprime Derivatives, June 29, 2007
youtube.com/watch?v=0YNyn1XGyWg

[Green_Bear]

How we got to this

https://www.econbrowser.com/archives/2008/01/complex_secure.gif

Mortgage securitization
econbrowser.com/archives/200 … ecuri.html