It is hard for many people to imagine the depths of greed and stupidity that have brought the world financial system to the brink again of late. It has been a complex web of players and parts over the past several years. Some of us that stayed on watch saw cause for concern 2 and 3 years ago and we have been following the evolution of this crisis closely. We find it surprising that others say they are surprised by recent events and losses. The financial engineers of this mess, the bank-broker-dealers, are living proof again of the old quote, “what a tangled web we weave when first we practice to deceive.”
Diligent, humble students of market history are valuable in flagging the risks in advance and in walking others through these times of crisis with a cool head. More than just a cool head, some of us also see our role as trying to get our clients and readers through these times with their capital in tact.
One of the people with valuable perspective on these issues is Jim Grant of Grant's Interest Rate Observer. You can watch his most recent interview this week on Bloomberg “Taking stock” here:
Other stories we are watching with interest this week:
Goldman forecasts global credit losses to hit $1.2 trillion
Goldman Sachs estimates the current market turmoil will result in $1.2 trillion in global credit losses and that Wall Street will bear 40% of the losses. “U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble,” Goldman Sachs economists said in a research note. “There is light at the end of the tunnel, but it is still rather dim.” Reuters (25 Mar)
Credit card asset-backed securities may extend crisis
Although the rate of delinquencies on credit card asset-backed securities has remained within the normal range, it has been rising over the past year and will likely continue to rise. “If card delinquencies continue to rise more rapidly than one would expect from the historical relationship between unemployment and delinquencies, we may still have to wonder about credit card ABS proving to be yet another shoe to drop in the financial markets,” CreditSights said in a report. FinancialWeek (27 Mar.)
Bear Stearns Sale to be probed by Senate. The top lawmakers on the Senate Finance Committee said they are reviewing the terms of the taxpayer-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co. With jurisdiction over federal debt, it's the Finance Committee's responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars. This week committee members sent a letter saying that they want to know the names of all negotiators and lawyers involved in the transaction as well as all the steps taken in the transaction and their specific dates and a list of steps yet to be taken.
They want a description of the assets to be secured by the Federal Reserve, including their value and the types of mortgages underlying the assets. The senators asked for all copies of documents that will be filed with the U.S. Securities and Exchange Commission. The senators asked for a response no later than March 28
Treasury spokeswoman Jennifer Zuccarelli said the department would work with the panel to respond to the request. JPMorgan spokesman Joseph Evangelisti declined to comment.
This will get interesting…..maybe even useful in getting on with the necessary fessing up and repricing.
Cory’s Chart Corner
“An explosive critique about the investment industry: provocative and well worth reading.”
“Juggling Dynamite, #1 pick for best new books about money and markets.”
“Park manages to not only explain finances well for the average person, she also manages to entertain and educate, while cutting through the clutter of information she knows every investor faces.”