Sub-prime is back with a vengenance


A good friend in the US told me to read and weep when reading the story the link to this Bloomberg story. He commented further by saying;

“Nothing new to observe that Wall Street, and finance capitalism in general, benefit from crisis.  That is why we will have more and deeper swings with less time to recover before each government bailout.  Savings and Loan crisis to Sub Prime was, what, 20 years?  Sub prime to this?  Seven?”

He adds

“There is a bit in it about how “this time it won’t end in disaster” as the issuers “will have skin in the game” as they will hold the riskiest tranches.  Yeah, that’s how they are going to get it past the regulators. I guarantee you, within 30 minutes of getting the green light, the issuers will figure out a way to shovel this shit out the door.  They won’t be stupid enough to call it a “credit default swap” this time.  “Inverse credit yield distribution,” might work and I can already see the AAA rating.  Whenever your read the word “credit” substitute “debt,” and suddenly everything is crystal clear.”

And finally

“Proprietary Trading” is another term cooked up to mean exactly the opposite of what it is and allow the regulators sleep in peace.  “Proprietary” implies that it is the “bank’s” own money.  And while technically it is “theirs” and they are the “proprietor” (can’t you just see the wise, cautious business owner?) it is also highly leveraged and essentially backed up with government insured deposits as these banks are too big to fail.  And then there is “trading.”  Isn’t “trading” that quaint thing that goes on down at the farmer’s market where the crusty local fishmonger haggles with you to unload his catch of the day?  Trade is a good, healthy thing, part of the multiplier effect that grows our economy, right?  When you read “proprietary trading” substitute, “Reckless market manipulation, creating unnecessary instability, often with varying degrees of insider knowledge, using taxpayer insured third party deposits.”

This is the same fellow who told me about sub prime mortgages in California many years ago on a trip to San Francisco and the dangers it posed to global financial markets. He was right than and l don’t doubt that he’s right again this time.




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