Red Headlines For March 21, 2008

Only The New York Times today. The others are busy with the usual trivia.

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Slump Moves From Wall St. to Main St.

In Seattle, sales at a long-established hardware store, Pacific Supply, are suddenly dipping. In Oklahoma City, couples planning their weddings are demonstrating uncustomary thrift, forgoing Dungeness crab and special linens. And in many cities, the registers at department stores like Nordstrom on the higher end and J. C. Penney in the middle are ringing less often.

With Wall Street caught in a credit crisis that has captured headlines, the forces assailing the economy are now spreading beyond areas hit hardest by the boom-turned-bust in real estate like California, Florida and Nevada. Now, the downturn is seeping into new parts of the country, to communities that seemed insulated only months ago.

The broadening of the slowdown, the plunge in home prices and near-paralysis in the financial system are fueling worries that what most economists now see as an inevitable recession could end up being especially painful.

Emphasis added by me.

Well, DUH! Yeah!

Back in the late 1980s, lending was concentrated in fewer hands. Once the government calculated the size of the problem in the saving and loan industry and assented to the bailout, confidence was restored and the wheels of finance turned anew.

This time, the size of the bad debts remains a mystery, with estimates reaching $400 billion. Markets fret that the next Bear Stearns could pop up anywhere.

Emphasis added by me.

And I open my mouth and start trouble by asking, Hey, what about CIT Group?

CIT Group Draws on Its Credit Line

CIT Group, the commercial finance company, said Thursday that it was drawing on $7.3 billion of bank lines to help conduct daily operations, a move that highlights the commercial finance company’s difficulty in raising cash to pay off debt.

The cost to insure CIT’s debt with credit default swaps is trading at distressed levels, costing 27 percent of the sum insured as an upfront payment, in addition to annual premiums of half a percentage point, according to broker Phoenix Partners Group. They had cost 24.5 percent upfront before the news Thursday.

This means it would cost $2.70 million in one lump sum to insure $10 million in debt for five years, in addition to annual premiums of $500,000 a year.

Shares of CIT plummeted 35 percent Thursday, extending losses that were high even before the midday announcement. CIT shares have fallen 88 percent since the beginning of June.

And:

Drawing on bank lines is often seen as an emergency action for companies unable to get financing elsewhere.

Emphasis added by me.

Uh-oh!

Explore posts in the same categories: C.O.A.T. - Money, Depression 2.0, Red Headlines

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