Achilles' Heel of Global Credit Crunch: Leverage, $2 Trillion Shock
London, UK - 18 November 2007, 02:56 GMT
Dear ATCA Colleagues
[Please note that the views presented by individual contributors
are not necessarily representative of the views of ATCA, which is neutral.
ATCA conducts collective Socratic dialogue on global opportunities and threats.]
We are grateful for the 85th contribution to the "Global Credit Crunch"
Socratic dialogue:
85. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf, London,
UK, for "Achilles' Heel of the Global Credit Crunch: Leverage and
The USD 2 Trillion Lending Shock;"
The number of iterations of an ATCA Socratic dialogue is a very rough indicator
of how critical a particular asymmetric threat is perceived to be and how
protracted it has become over time. This Socratic dialogue was started on
12th July 2007, nearly one month before the global credit crunch crisis and
associated fallout began with the European Central Bank (ECB) emergency injection
of Euro 95bn on 9th August 2007. Four months later, it remains the longest
and deepest running Socratic dialogue on ATCA, since our inception in October
2001.
Dear DK and Colleagues
Re: Achilles' Heel of the Global Credit Crunch: Leverage and The USD 2 Trillion
Lending Shock
The impact of the US mortgage market crisis on the underlying economy could
be far more dramatic than previously envisaged as leveraged investors may
need to scale back lending by up to USD 2 trillion, according to the investment
bank Goldman Sachs. The slump caused by the global credit crunch may force
banks, brokerages and hedge funds to cut lending by a factor of ten in comparison
to incurred losses and trigger a substantial recession in the US.
[CONTINUES]
[ATCA Membership]
Goldman's US economic forecasts already assume lending will fall by USD 1
trillion over the next two years, or half of the potential decline, without
providing an updated forecast. The New York-based bank expects US growth to
slow to 1.9 percent in 2008, less then the 2.4 percent median forecast of
other economists. Deutsche Bank, Germany's biggest bank, also said in a report
this week that credit losses may be USD 400 billion. That's equivalent to
"one bad day in the stock market,'' or 2.5 percent of the value of US
equities, Hatzius wrote. No serious analyst would argue that a 2.5 percent
equity market decline will make an important difference to the economic outlook.
So what's different about the mortgage credit losses? In a word, leverage.
Best wishes
ATCA Research & Analysis Wing
[ENDS]
The ATCA submissions can be accessed from here.
We are grateful to:
84*. Dr George Feiger, President & CEO, Contango Capital Advisors,
based in Berkeley, California, USA for "Excessive
Debt Defaults -- The Three War Fronts in The Credit Debacle;"
83. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington DC,
USA, for, "Rising Contagion - Global Credit
Crunch Cuts Deeper."
82. Gerald Clark, Head of the International Energy Practice at KMT Partners
and member of the Advisory Board of 33 St James's, based in London,
UK, for "The Sustainability of Uranium
Resources."
81. Andrew Hunt, Founder and Consultant Economist, Andrew Hunt Economics,
City of London, UK, for "Inflation Black
Swan & China's Achilles Heel: Two Economies, One Country."
80+ The Rt Hon The Lord Howell of Guildford, President, British Institute
of Energy Economics, based at The Palace of Westminster, London, UK,
for "Question of Trust, Total Transparency
and Extreme Volatility;"
79* Prof Joseph Mason, LeBow College of Business, Drexel University,
Philadelphia, USA for "Monitoring the Monitors
-- Central Banking and Rating Agencies;"
78. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "The Largest American
and Swiss Banks hit by Sub-Prime Meltdown & Global Credit Crunch;"
77. The Rt Hon Lord Howell of Guildford, President, British Institute
of Energy Economics, based at The Palace of Westminster, London, UK,
for "New Variables in Oil Supply at USD
100;"
76. Hamid Hakimzadeh, Hedge Fund Specialist, based in Buckinghamshire,
England, UK, for "The Credit Pyramid and
Energy Crisis;" and
75. Ashutosh Sheshabalaya, CEO, India-Advisory, from Brussels, European
Union, and Bassilly, Belgium, for "New
India's Role in Global Energy Equation;"
74. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Energy Crunch: The Overlay
of Peak Oil and Peak Uranium on the Credit Crunch;"
73+ Rudi Bogni, Chairman, Medinvest, and Director, Old Mutual, based
in London, UK, and Basel, Switzerland, for, "Transparency
always Pays in the Long Run;"
72+* Mark Cliffe, Chief Economist, ING Group, based in London, UK, and
Amsterdam, Netherlands, for "The Credit
Crunch Blame Game -- Inevitable, Necessary... but Dangerous;"
71+ The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Stress Testing BoE and
FSA System 10 Years post 1997 as Credit Crisis Winds 140 Years Back;"
70. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA, for, "The Fed's Bold Action confirms
Multiple Threats to Financial Stability and Economic Growth;"
69. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Asymmetric Solutions:
Fed Cuts Key Rate;"
68. Prof Jean-Pierre Lehmann based in Ouchy and IMD Lausanne, Switzerland,
for "Asymmetric Solutions: No War with Iran?;"
67+ Arthur Probert, Associate, & Mark Goyder, Founding Director,
Tomorrow's Company, London, UK, for "Asymmetric
Solutions: Restoring Trust after the Credit Crunch;"
66+ Jean-Yves Gresser, Vice-Chairman, Black Forest Group, New York,
USA, based in Paris and Granville, France, for "Asymmetric
Solutions: Enhancing Trust in Computing Platforms, Networks & Processes;"
65. Dr Philippa Malmgren, Founder, Policy & Markets, & President,
Canonbury Group, based in London, UK, for "Geo-Political
Risk & Inflation based Black Swans;"
64. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA, for "Greenspan's Double-Digit Inflation
Shadow over the World's Central Bankers;"
63. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Fiat Money and Northern
Rock's Parallels with 1973-1975;"
62. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Margin of Safety and
The Bubble Phenomenon: Differentiating between Value Investment and
Speculation;"
61. DK Matai, Executive Chairman, mi2g, ATCA, The Philanthropia,
based in Canary Wharf, London, UK, for, "Predicting
the Future: How does the 'wisdom based super-sensitive a priori knowledge'
ATCA engine work?"
60* The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "In Goldman Sachs We Trust;"
59. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA, and The ATCA Research & Analysis Wing (RAW), based in Canary
Wharf, London, UK, for "Currencies Turmoil
Ahead: Euro and Sterling Weakness around Point of Inflexion?;"
58. Eric Best, Founder and President, Best Partners SC, New York City,
NY, USA, for "Captains' Priorities and
Requisite Virtues in Deep Financial Storm;"
57. Andrew Hunt, Founder and Consultant Economist, Andrew Hunt Economics,
City of London, UK, for "The UK's Non-Bank
Banks and High LIBOR;"
56. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Worst Financial Crisis
in 20 Years and the 10 Day Debt Bomb;"
55+ DK Matai, Executive Chairman, mi2g, ATCA, The Philanthropia, based
in Canary Wharf, London, UK, for "Breach-of-Trust
in Computing Platforms: Systemic Risk & Black Swans;"
54+ The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "ATCA QUERY: The Question
of Trust;"
53. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA, and The ATCA Research & Analysis Wing (RAW), based in Canary
Wharf, London, UK for "Central Banks' Intervention
and Europa;"
52. Hamid Hakimzadeh, Hedge Fund Specialist, based in Buckinghamshire,
England, UK, for "The Physics of Humpty
Dumpty;" and
51. Nigel Reed, Senior Analyst, Financial Markets, based in Cornwall,
England, UK, for "China, Japan & US
T-Bonds."
50* The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Credit Card Debt Default
- The Domino Crisis post Sub-Prime Overflow;"
49* Dr George Feiger, President & CEO, Contango Capital Advisors,
based in Berkeley, California, USA for "Responsibility
for Credit, Securitisation and Moral Hazard."
48. Anthony Whitehouse, Founder, Bittiner Whitehouse (now Maitland), Geneva,
Switzerland, for "Blame and Sanctions in
the Credit Crunch;"
47. Prof Prabhu Guptara, Executive Director, Organisational Development,
Wolfsberg (UBS), Switzerland, for "Unique
Problems with 1990s Japan;"
46. The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, and Dr Harald Malmgren, CEO, Malmgren Global, based in Washington,
DC, USA, for "Central Bankers, Monetary Policy
and Moral Hazard;"
45* William Sturge, Partner, Reinsurance, Lawrence Graham (LG) based in
Central London, UK, for "Litigation Exposure
and Insurances that may Respond;"
44. Peter Tasker, Founding Partner, Arcus Investment, based in Tokyo,
Japan, for "Invaluable Lessons from 1990s
Japan - Risks of Schadenfreude;"
43. Andrew Leung, CEO, AL International, London, UK, and frequent visitor
to China for "The China Dimension of The
Global Credit Crunch;"
42* The ATCA Research & Analysis Wing (RAW), based in Canary Wharf,
London, UK, and Dr Harald Malmgren based in Washington, DC, USA for "Off-Balance
Sheet Conduits & SIVs Raise Wider Concerns;"
41* Prof Charles Calomiris, Columbia Business School, New York & Prof
Joseph Mason, LeBow College of Business, Drexel University, Philadelphia,
USA for "The Conflict of Rating Agencies
and Regulation - We need a Better Way to Judge Risk;"
40. Dr George Feiger, President & CEO, Contango Capital Advisors,
based in Berkeley, California, USA for, "Questioning
the Views of a Nobel Laureate;"
39. Prof Joseph Stiglitz, Nobel Laureate in Economics (2001), Columbia
University, New York, USA , for "Day of Reckoning
for Americans who lived Beyond their Means;"
38. Dr George Feiger, President & CEO, Contango Capital Advisors,
based in Berkeley, California, USA for "Suggestions
for Resolving Sub-Prime Dilemma Step by Step;"
37* Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA for "Understanding Rating Agencies
beyond the Sub-Prime Meltdown;"
36* The ATCA Research and Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "Asymmetric Knowledge Risk
and Market Deadlock;"
35* Anthony Whitehouse, Founder, Bittiner Whitehouse (now Maitland), Geneva,
Switzerland, for "High Credit Ratings and
Breakdown of Trust;"
34* John Pickering, Vice-Chairman, Labour Finance and Industry Group,
based in London and Tunbridge Wells, UK, for "Role
of Auditors;"
33* The ATCA Research and Analysis Wing (RAW), based in Canary Wharf,
London, UK, for "ATCA QUERY: Role of Credit
Rating Agencies;"
32. Peter Tasker, Founding Partner, Arcus Investment, based in Tokyo,
Japan, for "Resilience of Corporate Profits
& Sub-Prime Fiasco -- Global View from Japan;"
31. Daniel Morler, Head of Middle East, LGT Private Bank, based in Vaduz,
Liechtenstein, for "Human Factor, Information
Lag, Geo-Politics and Central Banks;"
30. Justin Urquhart Stewart, Director, Seven Investment Management, London,
UK, for "Pride Before the Fall -- Those Who Don't Know that they
Don't Know;"
29. Martin Wolf, Associate Editor & Chief Economics Commentator, Financial
Times, London, UK, for "To Cut or Not to
Cut: Federal Reserve must Prolong the Party;"
28. The Hon Al McDonald, Chairman and CEO, Avenir Group, from Michigan,
USA, for "Balancing The Role of Management
in Extreme Financial Turbulence."
27. The ATCA Editorial Team based in Canary Wharf, London, UK, for "Subprime
Crisis Spreads Across Regions and Financial Sectors;"
26* Hervé de Carmoy, European Vice-Chairman, Trilateral Commission,
based in Paris, France, for "Role of Large
Financial Institutions in Fuelling Crisis;"
25* Dr Jim Walker, Chief Economist, CLSA, based in Hong Kong for "China
Chaos and Subprime Butterfly;"
24. Ashutosh Sheshabalaya, CEO, India-Advisory, based in Brussels, EU,
and Bassilly, Belgium, for "India turns History
Upside Down;"
23. John Elkington, Chief Entrepreneur, SustainAbility, based in London,
UK, and returning from India, for "Mother
Convulsion - India's Third Liberation;"
22. Stephen Lendman, based in Chicago, Illinois, USA, for "Slow
Motion Train Wreck" via Ashok Khosla, Chairman, Development
Alternatives, New Delhi, India;
21. The ATCA Editorial Team based in Canary Wharf, London, UK, for "Market
Convulsions;"
20. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA for "Federal Reserve's Changed Focus;"
19. Bill Emmott, Director, UK-Japan 21st Century Group, based in London
and Somerset, UK, for "Japan's Strong Yen;"
18* Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA for "The Asymmetric Loss of Trust and
Chain Reaction;"
17. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Public
Inquisition of Credit Rating Agencies may Accelerate Downturn;"
16. Dr George Feiger, President and CEO, Contango Capital Advisors, based
in Berkeley, California, USA, for "Watch
out for Dramatic Winners;"
15* The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Systemic
Risk & Sectoral Meltdown: Heightened Correlation and Deleveraging;"
14. Rudi Bogni, Chairman, Medinvest, and Director, Old Mutual, from Basel,
Switzerland, for, "Non-Stop Central Banks'
Intervention;"
13. Dr Ravi Batra, Professor of Economics, Southern Methodist University,
Dallas, Texas, USA, for, "Towards a Global
Economic Crisis?;"
12. Aurora Carlson, Founder, Open One Center, based on the West Coast,
Sweden, for "The Coming Storm of Change;"
11. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Large
Quake hits Quants as Computer-Driven Quantitative Hedge Funds Short-Circuit;"
10* Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
USA for "Prolonged Credit Market Correction
Ahead;"
9. Prof Dr Norbert Walter, Chief Economist, Deutsche Bank Group, based
in Frankfurt, Germany, for "Economic Consequences
of The Sub-Prime Crisis;"
8. Anthony Whitehouse, Founder, Bittiner Whitehouse (now Maitland), Geneva,
Switzerland, for "Regulators, Hedge Fund
Lending and Cross-Selling;"
7. The ATCA Editorial Team, based in Canary Wharf, London, UK, for "Perfect
Storm: Credit Freeze and Distress Selling by Hedge Funds;"
6. Dr George Feiger, based in Berkeley, California, USA, for "Two
Faces of the Same Coin;"
5* The ATCA Editorial Team, based in Canary Wharf, London, for "Contagion
and Systemic Risk? ECB Injects Record Euro 95bn post Major Disturbance;"
4. The ATCA Editorial Team, for "Flight to
Quality as Markets finally Appreciate Risk;"
3. Robert McNally, Chairman, London Chamber of Commerce Property and Construction
Group, for "Erosion of Commercial Real
Estate as a Solid Asset Class;"
2. Alexander Hoare, CEO, C Hoare and Co, Private Bankers, based in the
City of London, for "Destructive
Creativity, Leverage and The Derivatives Market;" and
1. Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC,
for "The Fear of Central Bankers -- Flight
from Illiquidity, Derivatives and Heightened Risk of Contagion;"
in response to, "Are the Currency Markets
Warning that there is Trouble Ahead? The Precipitous Decline of the US
Dollar and its Impact on the World."
+ Denotes ATCA QUERY: The Question of Trust +
* Denotes ATCA QUERY: Role of Credit Rating Agencies *
We look forward to your further thoughts, observations and views. Thank
you.
Best wishes
For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency
Alliance (ATCA)
ATCA: The Asymmetric Threats Contingency
Alliance is a philanthropic expert initiative founded in 2001
to resolve complex global challenges through collective Socratic
dialogue and joint executive action to build a wisdom based global
economy. Adhering to the doctrine of non-violence, ATCA addresses
asymmetric threats and social opportunities arising from climate
chaos and the environment; radical poverty and microfinance; geo-politics
and energy; organised crime & extremism; advanced technologies
-- bio, info, nano, robo & AI; demographic skews and resource
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well as transhumanism and ethics. Present membership of ATCA is
by invitation only and has over 5,000 distinguished members from
over 120 countries: including 1,000 Parliamentarians; 1,500 Chairmen
and CEOs of corporations; 1,000 Heads of NGOs; 750 Directors at
Academic Centres of Excellence; 500 Inventors and Original thinkers;
as well as 250 Editors-in-Chief of major media.
The views presented by individual contributors are not necessarily
representative of the views of ATCA, which is neutral. Please
do not forward or use the material circulated without permission
and full attribution.
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