--- In AsburyPark@yahoogroups.com, "radio881gal" <[EMAIL PROTECTED]> wrote:
>
> Thanks for posting these links, Mario.
> I'm probably going to get my neck cut, but I've been struggling
> with this whole notion that the mortgages caused this thing, since it
> was the investment banks that started falling before the commercial
> lenders did.
My crude understanding of the issue.
It is my belief that at least 50% of economic and market behavior is
psychological. For instance, not saying that Bear Stearns and Lehman
were not in bad shape, but what made them in real bad shape is that
the "assets" they were holding were dwindling in value and no one
would do deals with them. Add to that that investment banks rely on
short-term credit rather than deposits like banks (hence the move away
from the US model of pure investment banks to bank holding companies).
Lending in general was loosey goosey for years. Yes, subprime became a
problem but it is really small but it played on the minds of investors
and snowballed - just like an old fashioned bank run. The bank could
be healthy but what happens if everyone wants their money out?
Add to that the velocity and multiplying action of the need/want to
sell. As prices decrease more you need/want to sell more. The more you
sell (supply increases) the more prices decrease.
Then we have the issue of the master of the universe thinking that
they created investment vehicles that completely spread out the risk
to nominal levels. No one really knows the truth and the only true
thing that can be said about this is that it actually made the
measurement of total risk not feasible. It may have actually
multiplied the amount of risk because bets were laid off on others
(default swaps).
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