Many Wall St.’s top deal makers must have butterflies are starting to float around the stomachs as we write this update: all our fears are coming true. All of them… this week there was an avalanche of dire warnings like ever seen before. As of June 28 BofA Analyst said that mortgage correction just ‘tip of the iceberg’ :

… According to BofA’s estimates, approximately $515 billion of ARMs are scheduled to reset in ’07, followed by approximately $680 billion in ’08. Furthermore, of these ARMs, we estimate that subprime loans consist of $400 billion (78%) in ’07 and $500 billion (73%) in ’08…

One of the scariest headlines was that found on Bloomberg.com

S&P, Moody’s Hide Rising Risk on $200 Billion of Mortgage Bonds… “You’ll see massive losses from banks, insurance companies and pension managers,'’ said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York and co-author of a study last month that said S&P, Moody’s and Fitch understate the risks of subprime mortgage bonds. “The longer they wait, the worse it’s going to be.'’ … Losses may rival the savings and loan crisis of the 1980s and 1990s. The Resolution Trust Corp., formed by the U.S. government to resolve the thrift crisis, sold $452 billion of assets at a cost to taxpayers of about $140 billion…`Massive Downgrades’: A sweeping downgrade of bonds would lead to sales of assets by investors, banks and pension funds who operate under rules that would cause them to adjust their portfolios to reflect the new ratings. S&P, Moody’s and Fitch have restricted their ratings changes on BBB- rated mortgage bonds to 1.3 percent of those outstanding, according to Credit Suisse analyst Rod Dubitsky in New York. About 80 percent of the remainder will eventually have their ratings reduced, he said…“We’re talking about massive, massive downgrades here,'’ Dubitsky, the No. 2 asset-backed real estate debt analyst in last year’s Institutional Investor magazine poll of researchers, said in a telephone interview.  S&P abandoned seven-year-old criteria for determining a bond’s protection against default in February…

Corruption and misconceptions from the bottom up. Even some at the Federal Reserve acknowledge their errors to have implemented highly damaging low interest rates:

… Neither former Fed Chairman Alan Greenspan nor successor Ben Bernanke has acknowledged the Fed’s role in creating this housing bubble. But last autumn Richard Fisher, president of the Dallas Fed, offered a kind of proxy mea culpa when he noted that “In retrospect, the real fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been.” …  WSJ/6/28

The problem you see is that even apologies cannot save postposne the day of rekconing by much anymore. Ambrose Evans-Pritchard working for the Telegraph.uk describes a hard landing awaiting around the corner.

Banks ’set to call in a swathe of loans’ - The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research… Lombard Street said the Bear Stearns fiasco was the tip of the iceberg. The greatest risk lies in the “toxic tranches” of lower grade securities held by the banks… Much-trumpeted claims that banks had shifted off the riskiest credit exposure on to the asset markets was “largely a fiction”, said Mr Dumas… The worst of the US property crisis has yet to hit since there is an overhang of $2,000bn of mortgages with adjustable rates which have yet to be reset. Many borrowers could see payments jump by half, or even double (26/06/2007)

And here comes the most terrifying. If you do not know what CDO means here is an expalanation. The article of Evans-Pritchard goes on:

“The banks were not prepared to bid over 85pc of face value for CDOs rated “A” or better,” he said. “God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc. “We don’t know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn.”

We are sorry to be so gloomy today, dear Readers, but as you can see The Wallstreeters want to continue to paint rosy pictures at the world citizens’ expenses.

Those debt games have inflitrated society to such a  pernicious level that it is morally bankrupting us to the core of our souls. Here is what we could read on Jun 28, 6:05 in the Financial Times:

Riskier debt plays bigger role in corporate fundraising: The amount of cash raised through the debt capital markets as a whole - including bonds of both investment grade and lower quality junk-rated paper - reached $1,450bn, the highest volume on record, and up 32 per cent over the same period last year…  ”There is a lot of cheap debt and availability of debt for companies, which isa direct result of strongeconomic growth and a surge in corporate earnings,” he said. “Companies had deleveraged so much after the bust in 2000 and now leverage is coming back to more sensible levels.” However, there are some concerns about whether the pace and intensity of capital-raising will be affected in the long-term by the turmoil in the credit markets… 

Here we go again?