Economics Update

first, let's start off by saying that Tom Toles is a bloody genius:



We have Citi on a path to cutting 30,000 jobs, and we have Dubai International Capital LLC, a sovereign wealth fund saying that losses will get worse, and they will need another infusion of capital.

FWIW, it was Abu Dhabi investors who just bailed them out a month or so ago, not Dubai.

In real estate, they've just discovered that
the real estate collapse is making first-time buyers less likely to buy.

In related news, water is wet, and the sky is blue.

In truth this is hardly surprising when even people like Ben Bernanke, who has done his best to avoid panicking the markets is saying that foreclosures will increase, and house prices will fall for a while yet.

Ratio of home ownership to rental costs are near a historic high, so why would someone want to buy into a depreciating asset?

Meanwhile, we are finding that the, "extra yields investors demand on bonds backed by assets from commercial mortgages to credit cards rose to records", recently, despite the fed rate cuts, leading a senior managing director at an investment firm to quip, "People are calling it financial Ebola".

Translated into language for ordinary people, this means that people are requiring a much higher markup on either the prime rate, or the Fed funds rate, before they make loans.

Yields on three-year, AAA rated credit-card bonds with floating rates rose to 75 basis points over the London interbank offered rate, up from 40 basis points at the start of the year, according to Deutsche Bank AG data. Spreads over three-year swap rates for three-year, AAA rated fixed-rate auto-loan securities rose to 140 basis points, up from 75 basis points. The average spread over U.S. Treasuries on AAA rated commercial-mortgage securities climbed to 364 basis points, from 167 basis points on Dec. 31, according to Lehman Brothers Holdings Inc.

A basis point is 0.01 percentage point.

People are increasingly unwilling to lend money, and demanding higher returns, because they have no faith that it will be paid back.

Speaking of being paid back, Fremont General just defaulted on $3.15 billion in subprime mortgage loans that it sold a year ago.

The creditors are demanding immediate repayment, because Fremont's "tangible net worth" (assets minus liabilities) have dropped below $250 million, meaning that they have violated the terms of the original sale.

Finally, we have Jon Moulton, the head of private equity firm Alchemy Partners, pretty much guaranteeing that, "There will be large private equity failures this year". From the context he means both deals and firms.