Publié par : crise2007 | novembre 16, 2007

Two Interviews on CNBC on FASB 157: Or Being Forced to Price Radioactive Toxic Waste at Market Values

Two Interviews on CNBC on FASB 157:
Or Being Forced to Price Radioactive Toxic Waste at Market Values


Nouriel Roubini

This author appeared twice this week on CNBC to discuss the outlook of the US economy, the implementation of FASB 157 and how it will force financial institutions to recognize a much larger size of losses from impaired assets (RMBS, CDO, leveraged loans, etc.). So far banks and other financial institutions have recognized losses only in the $40-50 range. But market estimates by myself and other analysts (RBS, DB) suggest that total losses for investors from submprime and other mortgages (and their related securitized assets) could be in the $300 billion to $500 billion range. While many of these losses will be borne by banks and investment banks many will be borne by other financial institutions (hedge funds, insurance companies, asset managers, both in the US and abroad). Losses will be even larger once we including the looming disaster in commercial real estate (expected losses of $100 billion), credit cards, auto loans and other consumer credit (securitized or not).While FASB decided yesterday to to pospone the implementation of some parts of FASB 157, only non-financial assets (business combinations, etc.) have been excluded from this implementation; thus financial assets including asset backed securities and other illiquid financial assets will now have to be valued – whenever possible – using market prices or proxies of them rather than using voodoo-finance models and credit ratings (or better misratings) that don’t make sense. Here is the link to this morning’s interview And here is the link to the Monday interview.(where I discuss both FASB 157 and why a US recession is by now practically inevitable).A final observation on retail sales and the coming US recession: yesterday’s figures were utterly ugly. The 0.2% increase in October translates into a zero or negative figure in real terms. So Q4 started with falling real retail sales and most likely falling real private consumption. Even if November and December are modestly better than October, real private consumption could be growing less than 1% on a SAAR basis in Q4 and possibly closer to 0% if the holiday season is as bad as many private forecast suggest (and see the dismal report from the major retailer JC Penney today). And today data on sharply rising initial claims for unemployment benefits (339K in latest week) are a clear indication – among others – that the slump in labor market is in full swing. And the severe liquidity and credit crunch in financial markets is getting worse by the day. Thus, real GDP growth in Q4 may end up close to 0% than to 1%, even with real consumption growth in Q4 at a 1%. I.e. in Q4 we are already back again – as in Q1 – into a growth recession range (0-1%) and very close to an outright recession that will be in full swing by H1 of 2008

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