Aug 11, 2007

Heading into the "Perfect Financial Storm"?

Can't say we didn't warn You enough!

Note: Photo is graphic art recreation of a  'Freak Wave' taken from relevant BBC article.
Aren't these nautical allegories just right for financial situations like this?

The well-oiled gears of US and lately the world's financial markets have been grinding and crunching the sub-prime grit and dirt for some time now.
Suddenly last week noises were heard all over the place and dutifuly the "Money Alchemists" poured some more fiat "oil" into the system hoping to remedy the crunch.
In the end they are just pouring more oil into the fiat bonfire.

Will this be the "straw that broke the camel's back"?

Here's what David Galland of "Case Research" has to say:

"..that the derivatives market is so complex that when an economic turn for the worse kicks the pins out from under the financial models used in creating the instruments, the intrinsic value of those investments simply cease to exist.

This was made evident once again when BNP Paribas, France's biggest bank, stopped allowing investors to withdraw money from their troubled funds because, they explained, they could no longer ``fairly'' value the holdings.

Speaking to Bloomberg, Alain Papiasse, head of BNP Paribas's asset management and services division, said ``For some of the securities there are just no prices. As there are no prices, we can't calculate the value of the funds."

At this point no one really knows how many of the derivatives are built on sandcastles in a rising tide…but as this is a $300 trillion market, much of which is designed to maximize leverage, you can assume the total is significant.

A credit crunch is in the making, and it couldn’t come at a worse time – in the midst of an imploding housing bubble, against the backdrop of historic trade deficits, in the early stages of a currency crisis.

By now we hope you are rigged for stormy weather, the waters of which the world’s governments will try to oil over with unlimited amounts of freshly created cash. Will it be enough? Too much? Only time will tell."



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