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Joined: Mar 1999
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Pooh-Bah
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God, it's bad everywhere. Man, when are they going to begin having runs on the banks? I hope that doesn't happen.


____________________



You, you and you, panic. The rest of you follow me.
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Bionic Scribe
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Quote
British Prime Minister Gordon Brown told Parliament: "While our economy is resilient and the fundamentals strong, we will . . . continue to take whatever action is necessary to maintain economic stability."
Sounds familiar....

Quote
The City -- London's equivalent of Wall Street -- has been hard hit by the U.S. subprime crisis. The Centre for Economic Business Research in London estimates the financial market turmoil will lead to the loss of 10,000 jobs in the City this year.

"The major players in the U.K. financial market are essentially American banks. And it's not just American banks -- we've seen a number of big European banks that have been exposed to the [credit crunch]. And what's happened to Bear Stearns has just raised investors' doubts about the liquidity risks that banks have," said Jonathan Said, senior economist at the research group.

[snip]

In China, meanwhile, investors are wondering whether the government will intercede to stop the decline of markets. Shanghai's composite index has fallen from a peak of over 6,000 in October to 3,820 today.
Stocks Tumble globally - los Angeles Times


Life is a banquet -- and most poor suckers are starving to death -- Auntie Mame
You are born naked and everything else is drag - RuPaul
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Gloom and Doom... I wonder that anyone would read this stuff.
I just post it here to get it out of my system.

For the time being, I'm ignoring what's happening with the Fed, and the Markets. It just doesn't make any sense to me.

Here's some further information on the part of the banking problem that no one seems to understand.

Excerpt from Asia Times Article

Quote
As the mortgage blow-up has shown, many of the "modern finance" techniques that have been designed in the last 30 years have shown themselves fatally flawed. Of all such innovations, probably the one posing most current danger for the world’s financial system is the credit derivatives market.

Like most modern finance products, credit derivatives were marketed as hedges. A bank could reduce its credit exposure to a particular borrower by entering into a contract whereby another bank would make payments to it if the borrower fell into bankruptcy.

Needless to say, once Wall Street's trading desks got hold of credit derivatives, all thought of hedging was lost. Instead of selling a credit exposure once, banks sold it 10 times, or even 20. Instead of selling credit exposure to another bank or an insurance company, which would be able to handle the credit exposure and could be relied upon to pay up in case of trouble, credit derivatives traders sold credit derivatives to hedge funds, private equity funds and any riff-raff that walked in off the street.

As a result, the credit derivatives market is a time-bomb waiting to explode. It will remain quiescent while credit losses on the underlying loans are low or moderate, but at some point rising credit losses on the underlying loans will be multiplied by the credit default swap mechanism to produce a payment requirement that is several times the size of the underlying defaulted loans.

Theoretically, that mega-payment requirement would be offset by mega-profits in other corners of the web of counterparties. In practice, the losses are likely to be large enough to cause counterparties to default, particularly if they are "men of straw" such as hedge funds, so the profits will prove ephemeral while the losses prove all too real. Losses of even a modest fraction of a $50 trillion principal amount would bring down most of the banking system.
................................................

The gist of the current situation as I see it, is that the game will play out over several months, and I agree with Hutchinson that this could change quickly, with almost any trigger.

Last edited by itstarted; 03/19/08 12:31 AM.

Life is Good!
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Phil...
An interesting sidenote to the uncertainties of the European Central Banks, is that if they don't lower their interest rates, it's entirely possible that the US could see the beginning of the equivalent of the Yen Carry Trade,in the American Dollar... since the guarantee and the overnight rates are actually under the inflation rate.

This is all head spinning. The current market upswing blip is pretty interesting... Not only are the TV pundits talking of last week's "low" as the turnaround of the markets, leading to a year end high of a Dow @ 15,000, but some of my friends taunted me today that their portfolios are looking real good and the crisis was over. smile

This is one time I wish that they were right.

Last edited by itstarted; 03/19/08 12:53 AM.

Life is Good!
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