Where are we in the credit crunch?

Maybe a collection of golden nuggets will give us some clues.

Merrill included for the first time $5.7 billion of subprime exposure at Merrill Lynch Bank USA and Merrill Lynch Bank & Trust, while also upping by about $600 million its exposure to CDOs after an insurance policy Merrill had taken out against losses was terminated following a dispute with the unnamed seller.- Reuters

Hmmm.... I wonder how much is "insured" that isn't counted yet.

Merrill Lynch (MER.N: Quote, Profile, Research) upped its tally of exposure to risky subprime and structured credits by $6.3 billion, to $27.2 billion - Reuters

Hmmm.... Sounds like it's just coming out of the woodwork.

Meanwhile, Moody's cut ratings on $33 billion of debt of structured investment vehicles (SIVs). SIVs, off-balance sheet bank affiliated structured financings, total more than $300 billion, and are a threat to find
their way back on to bank balance sheets - Reuters

Hmmm.... Every time ratings are cut, that's another ticking time bomb just waiting to go off. Sooner or later, the losses will show up.

The October Federal Reserve Senior Loan officer survey showed tightening conditions almost across the board, and notably for loans to "prime" home borrowers

The survey has been around since 1966 and has proved to be highly predictive of future economic growth. - Reuters

Hmmmm.... Again, another future indicator of more trouble coming down the road.

Standard & Poor's said a collateralized debt obligation managed by State Street Corp. began liquidating its assets, prompting the ratings firm to slice the investment vehicle's ratings as much as 18 levels.

The ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA class was slashed 18 steps to CCC-. The chance of material losses to noteholders is high, New York-based S&P said

Carina is the first CDO to begin unwinding after a slump in the credit worthiness of the underlying assets, S&P said. Thirteen others have informed S&P of an event of default, a precursor to liquidation. A widespread fire sale by CDOs, which package asset-backed securities and resell them in pieces, may further exacerbate declines in subprime-mortgage securities.

Hmmmm.... AAA to BB. According to the ABX indexes, AAA is trading from 75-95 cents on the dollar. BBB runs from 18 to 38 cents on the dollar. BB is not even on the chart. I pity the investors liquidating into this market. I wonder whether any banks own any of this. If they do, you can bet it will come up again.

Events of default, triggered by ratings cuts to holdings of the CDOs, can
force the transactions to liquidate, S&P said last week. Alternatively, the
events would result in all payments being diverted to the most senior classes, whose owners may vote on whether to liquidate, S&P said.

It all comes down to the ratings. Ratings gave this derivatives monster life, and ratings will cause its death.