Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Hedge Fund Failures is Fire in the Projection Room

Interest-Rates / Financial Crash Aug 02, 2007 - 12:29 AM GMT

By: Tim_Iacono

Interest-Rates

Many people in high places continue to assert that problems with hedge funds and subprime lending do not pose a systemic risk to the financial system.

If these important people did think the entire financial system was threatened, do you think they would tell us?


FireWhy would they tell us?

Wouldn't that be like the projection room crew yelling "FIRE!" in a crowded theater as they attempt to suppress the flames from something that was ablaze upstairs?

Maybe some patrons already got a whiff of something foul smelling, but not enough to compel them to make for the exits while the movie plays on.

Hopeful that the flames could be beaten back, the theater staff would probably delay notifying the audience until they were sure their patrons were threatened - otherwise life and limb may be risked as panicked movie-goers all made a hasty retreat from the building at the same time.

Inciting a panic would only make things worse, unless of course the small fire turned into a much bigger fire and, in the end, no one survived because no one yelled "FIRE!"

Is that what's happening in financial markets today?

A fire in the projection room?

A week ago, a report from ratings giant Moody's claimed there were "serious reasons to worry" but that systemic risk was not among them since "financial institutions retain a high capacity for withstanding shocks."

Last month, Fed Governor Kevin Warsh testified before the House Financial Services Committee stating that there may be more downside to go in the current credit market tumult, but, "We don't see any immediate systemic risk issues."

At the same hearing, Treasury undersecretary Robert Steel said that the recent sell-off in subprime securities "does not seem to be a systemic issue."

Earlier this year, current Fed chief Ben Bernanke noted there were indeed systemic risks from the GSEs (Fannie Mae and Freddie Mac), referencing former Fed chief Alan Greenspan's successful effort to reduce the role of GSEs in the financial system - in this case the systemic risk was clearly identifiable, derived from the GSE's implied government guarantee.

Other than that, there is nary a systemic risk to be found.

Over a year ago, Ben Bernanke spoke on the subject of hedge funds and systemic risk, ultimately rejecting the idea of somehow making hedge funds less opaque to "allow authorities to monitor this possible source of systemic risk and to address the buildup of risk as it occurs."

Maybe that would have been a good project to undertake in early 2006 rather than watching things unfold as they are now with no tools and no data at their disposal.

Almost ten years ago, former Fed chief Alan Greenspan noted that when banks "are undercapitalized, have lax lending standards, and are subjected to weak supervision and regulation, they become a source of systemic risk both domestically and internationally."

Lax lending standards and weak regulation leading to systemic risk...

Hmmm...

Earlier today, it was revealed that another hedge fund from Bear Stearns is in deep doo-doo. According to the report, they have "blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages" . Unlike the two Bear Stearns funds that went belly-up last month, this $850 million asset-backed fund had no leverage and virtually no exposure to subprime mortgages.

Call it systemic risk, call it what you want - whatever it is, it is spreading.

In this most recent case, it's as if the movie-goers are locked inside the theater, unable to leave, while a fire burns out of control in the projection room, yet nobody yells "FIRE!"

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

Tim Iacono Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules