Bulletins from the Titanic - "Steady as She Sinks!"

http://counterpunch.com/whitney11132007.html


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Amid the deluge of bad news over the weekend; one story towers above all the others. The yen gained 1.5 per cent against the dollar. (9 per cent year-over-year) That means that Wall Street's biggest swindle, the carry trade, is finally unwinding. The over-levered hedge funds will now be forced to sell their positions quickly before the interest-rate window shuts and they're stuck with humongous bets they cannot cover. The faltering yen is the grease that lubricates the guillotine. $1 trillion in low interest loans--which keeps the trading whirring along in US markets--is about to get a haircut. Cheap Japanese credit is the hidden flywheel in Hedgistan's main-cylinder. Once it is removed, the industry will seize up and clank to a halt. Fund managers can forget about the vacation rental in the Hamptons. It'll be sloppy Joes and Schlitz Malt-liquor on Coney Island from here on out.

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What's clear is that the situation is getting worse, not better. Honesty must at least be considered as one of many options, although the Treasury Dept avoids that choice like the plague. Eventually, the public will have to be told about what is going on. Last week, the Financial Times reported: "In recent days, investors have been presented with a stream of high-profile signs that sentiment in the financial world is deteriorating. However, deep in one esoteric corner of finance, another, little-known set of numbers is provoking growing concern. So-called correlation - a concept that shows how slices of complex pools of credit derivatives trade relative to each other - has been moving in unusual ways 'What we are seeing in the synthetic markets is that there is a serious fear of systemic risk,' says Michael Hampden-Turner, credit strategist at Citigroup. 'This is not just about price correlation within the collateralized debt obligation market, but about a potential rise in default correlation and asset correlation.' Until recently, traders often tended to assume that there was relatively little correlation between different chunks of debt, because they thought that the biggest risk to the world was idiosyncratic in nature - meaning that while one company, say, might suddenly default, it was unlikely that numerous companies would default at the same time. However, some regulators have been warning for some time that in times of stress correlation does not always behave as traders might expect."

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Finally, Greg Noland, at Prudent Bear.com reports on the "looming disaster" at Fannie Mae where, the best-known Government Sponsored Entity (GSE) has entered into the current housing slump with a "Book of Business of mortgages, MBS and other credit guarantees of $2.7 trillion" which is backed by a measly "$39.9 billion of Shareholder's Equity".

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The only thing looking up are oil futures. And they'll be denominated in euros soon enough.
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crumble, crumble

like building on imaginary sand.

I have to say, if it brings the market back to reality,

then we need a massive, crippling reassessment.

It's really gotten out of hand, though. How many homeless families will this make?

under Bush's watch, it has become a mainstream activity within the market. This practice is a zero-sum game and is has to end.