-- Posted Friday, 7 March 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Friday, March 7, 2008
“Phenomenally accurate forecasts”
The catch-phrase “subprime mess” is giving way to a new financial buzzword: “counterparty risk.” Although we’ve yet to hear Katie, Brian or Bob use the term on the evening news, it’s been surfacing with increasing frequency in print, and it got a real workout yesterday when it was needed to explain why two financial giants that had not even been rumored as troubled suddenly turned up on gurneys in the emergency ward. Both had failed to meet large margin calls, but the real worry is that if the two companies – Carlyle Capital and Thornburg Mortgage -- are forced to liquidate assets, the selling could trigger a price spiral that would put pressure on other lenders’ portfolios. That’s what “counterparty risk” implies above all – that when a firm gets in trouble, it can set off a chain reaction. These days, so many financial firms operate with such enormous leverage that neither the extent nor even the specific nature of counterparty risk across the banking system is knowable. As such, it seems highly plausible that even a relatively small company that gets on the ropes could take some much larger firms down with it.
The distressing saga of yet two more firms gone dangerously far out on a limb is not exactly the kind of news Fed chairman Ben Bernanke needed to hear. He’d spent the earlier part of the week encouraging bankers to write down their mortgage portfolios, effectively letting shareholders take the hit rather than delinquent homeowners. The pundits saw this as a radical departure for Helicopter Ben -- the sort of stealth populism you might expect from Hillary or Obama, but not from the man whose main job is safeguarding the banking system and its precious capital.
Augean Stables
We must confess that we are growing increasingly sympathetic toward Mr. Bernanke, since he inherited from Alan Greenspan a corrupt, stinking mess-of-an-economy that makes the Augean stables look like a pristine pasture in comparison. We’ve even learned to live with his shameless lies, such as that the economy will somehow squeak through 2008 without a recession. What’s the guy supposed to say!? That we are all effed? We give him credit for at least trying to prepare the bankers for the worst. Or do they perhaps have some other plan for dealing with the tens of millions of homes that could conceivably wind up in foreclosure?
We sense that the Fed chairman understands what the endgame will look like, and that he is doing his utmost to prepare the banking system for it -- but without saying or doing anything that might touch off a stampede. Isn’t that his job?
***
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Friday, 7 March 2008 | Digg This Article | Source: GoldSeek.com
