Credit Crunch May Be Nearing End

I think this credit crunch may be nearing its end. What I mean by that is that banks will start lending to each other at a normal pace. And when I mean near, I mean in the next thirty days or so the rates will return to normal.

However, there is still significant asset depreciation to be had in the markets. the valuations of houses, companies, and bonds will all surely go down as there is a broad evaluation of traditional assumptions mainly that debt is actually risky. So the stock market will definitely continue to go down as the earthquake of subprime mortgages suffers from aftershocks while business activity will actually return to normal rates.

However, this prognosis is conditional on whether the bond insurers and the Credit Default Swap markets stay intact. There is a strong possibility that these markets will literally implode, causing many people to lose lots of money, and also will have a strong ripple effect across other financial innovative instruments that will ultimately lead to the unraveling of the modern banking system; a system where innovation upon innovation are all linked together in a Jenga like fashion - pull one piece and syanora. These innovations have only been around for sixteen years approximately but have grown in complexity and in size.

From MarketWatch: "If Ambac and MBIA(bond insurers) lose their top ratings, billions of dollars of muni bonds will be downgraded, and the guarantees that have been sold on mortgage-related securities such as collateralized debt obligations, or CDOs, will lose value.
"The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame," Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday.
Kravec cut her rating on Ambac and MBIA on Friday because she thinks that ratings downgrades are "highly probable" now."

Today, AMBAC was downgraded. Lets see what happens as it may spell a real catastrophe.