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Sunday, September 04, 2005

New Orleans effect on housing ??

Primer on my investment outlook

At 1:34 PM, Chromatic Dispersion said...

Insurance uses derivatives contracts as cover the cost of insurance payouts. The destruction of New Orleans will destroy the financial engineering designed to pay for casualty. The government shall have to bail out the insurance companies or a systemic banking risk could form in some of the banks.

Banks are the counter party to the insurance derivative contracts. With rising foreclosures and bankruptcies, if not taken care of quickly, the losses could start to overwhelm the banks loan loss reserves.

To start a chain reaction of bank failures, all it takes is to overwhelm the loan loss reserves of several smaller banks, inciting other banks and businesses to default upon their financial obligations. I bet the Federal Reserve is moving very quickly by right now...."

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