Signup for our free newsletter:

The Credit Crisis is Nearing an End (We think)...

Written By Brian Hicks

Posted March 13, 2008

You really have to wonder what color the sky is for credit agencies. 

Standard & Poor’s believes that subprime writedowns will total close to $285 billion when the crisis is over, putting us "past the halfway mark."

But the S&P has as much credibility, as Tom Cruise has as a psychiatrist. 

Say reports, "Standard & Poor’s Ratings Services believes that the bulk of the write-downs of subprime securities may be behind the banks and brokers that have already announced their results for full-year 2007. There may be some additional marks to market as market indicators have shown deterioration in the first quarter. However, when we dissect the percentage of write-downs taken against various types of exposures, in our opinion the magnitude of some write-downs is greater than any reasonable estimate of ultimate losses…"

Unfortunately, the financial world is no where near the end of crisis.  At Countrywide and Washington Mutual, for example, option ARMs are only now beginning to reset.  These are a type of ARM with as many as four monthly payment options with interest rates that can change every month.

Says Business Week, "A closer look at the books of big lenders reveals several weak spots that haven’t yet shown up in the financial results. At many banks, bad loans are piling up faster than the amount of money they’re setting aside to cover them. Meanwhile, housing lenders booked income on vulnerable exotic loans and mortgage securities before they collected the money — paper gains that may be reversed through writedowns. Plus the values of some troubled loans, which have been trimmed modestly so far and shown up in previous losses, could still be overstated.

Lenders, most of which report first-quarter profits in April, will probably realize more pain as auditors and analysts scrutinize balance sheets. That could touch off another round of banks scurrying for capital or cash from outside sources to shore up their businesses. "Every day there’s a new revelation, an ‘Oh, by the way, I forgot to tell you about this other problem,’" says Donn Vickrey, co-founder of Gradient Analytics, a Scottsdale (Ariz.) research firm specializing in forensic accounting."

Oh, and don’t forget about prime writedowns, and the continuing waves of delinquencies and foreclosures, which soared nearly 60% in February.  According to reports, 223,651 U.S. homes received "at least one notice from lenders last month related to overdue payments, up 59.8 percent from 139,922 a year earlier."

It’s time to pull your head out of the sand, and wake up, S&P.  We’re nowhere near finished.