Tuesday, September 16, 2008
Fast And Furious
Russian exchange crashes out and has to close AGAIN. Oil up a bit overnight.
CR has a sort of roundup post listing a lot of the events, featuring quotes by Brian Horey (who knows what he is talking about). I agree with the basic contention that recognition of the real situation is a necessary precursor to ending it, but I disagree with the import of CR's statement here:
Until the institutions get realistic on their house price forecasts, the write downs - and the credit crisis - will continue.There are a bunch of inflated asset values at the bottom of this, those inflated asset values exist all over the world, and they exist in just about every class of assets. This is a nearly global failure to deal with risk. The next wave of pain is due to come from corporate debt. The corporate bond market in Europe and a few other areas is exceedingly worrisome, for example. Commercial real estate values are lunatic in many areas. Valuations of companies are often insanely optimistic, and the commodities bubble was just another example of a world willing to believe anything about value.
I am working on a long post about what I feel were the underlying causes of this mess. What's delaying me is not just the length but the fact that I get a headache every time I work on it. We're a long way from bottom and it seems to me that some major CBs and world governments are still refusing to address reality.
I do not feel that the recent turmoil has made the situation more dangerous. We're just beginning to see the real operators behind the curtains.
I'm thinking that a shotgun and wedding bells are in JP Morgan's and WaMu's futures.
What's your take on the rating agencies and their role in this? From where I sit, outside of things, their after-the-fact changes on AIG's ratings say they aren't doing their jobs. The way I see it, they are supposed to be detectives, reporting problems before their consequences spread. Instead, they've been acting like the evening news, reporting on things that happened last night.
I was just amazed to read that even Volcker wants to set up a new RTC. The problem is that if anyone sells assets at FMV they'll go bankrupt. I always thought he had more sense.
I can't wait. The recession deniers and the "it's all because of the CRA" crowd are making me crazy.
Let's face it, every society spawns wackos, but in an open society they are on display.
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