Wednesday, Aug 15, 2007
But unlike ordinary markets that you and I are familiar with, this giant casino is not just about betting on a price that goes up or down. It's about betting on virtually every quirk and intricacy of nearly every investment under the sun.
marketoracle.: Global Financial System in Jeopardy
Back in 1998, that's almost what happened: Russia defaulted on its debts. A major hedge fund, Long Term Capital Management, collapsed. Banks recoiled in horror. Stock and bond markets nosedived. And the world's financial system was perilously close to the brink.
That was nine years ago.
Nine months ago, in our November 2006 Safe Money Report, we laid out a scenario of how this was likely to happen again and in a bigger way.
We explained how a mortgage market collapse would lead to a credit crunch, and how a credit crunch could threaten the financial system.
Posted by chris :-)) @ 10:24 AM (106 views) Add Comment
5 Comments
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1. Symo said...
This article is pretty cool if a little jittery. It does however explain quite clearly the murky waters of derivatives. I have always known that big investment companies borrow money to buy shares/stocks/CDO's in the hope of making a profit on these high risk loans, but what really amazes me is that there is never any contigency plan if they are wrong to pay the money back.
2. Moonglum101 said...
Ouch, now I want to know if my savings are safe?
Still, with money saved up in Japan as well as the U.K something somewhere ought to be safe. If I take this article too seriously it sounds like we might get anarchy in the streets!
Anyone else concerned about this?
3. sold 2 rent 1 said...
WOW
This is not scare mongering.
This is the 70 year debt cycle unfolding before our very eyes. (as it did ater 1929 and 1834).
This time though the scale is much bigger than anything seen before.
I'm doing well on my S&P put options but my biggest headache is when to pile into gold.
Currentlty, the USD is rising, gold is falling, GBP is falling, Yen is rising.
I just hope that these banks don't go bust before I can get my cash out.
4. Doom-mongering Loon said...
On banks: go Swiss - they have some of the most stringent reserve requirements and therefore strongest banks in the world. They also have branches in the UK.
On gold: definitely hold some now, yes, but do not be surprised if it takes a major tumble in the months ahead if the bear market does materialise before finally rocketing much later on. Don't forget, it has been going up in correlation with everything else the past few years and so may well fall with everything else as well.
5. Refusetobuy said...
What people don't realise is that when people put money in a bank account they are actually selling insurance to the bank. Once the losses from the banks trading are larger than the amount of equity the bank owners have invested, they start eating into the ordinary account holders funds.
If you have money in a high street bank and they lend to self assessed home buyers or BTLers, then actually it's you who've lent to these risky people. There is the safety cushion of the shareholders equity, but it may not be that thick.
Choose your bank carefully. It's your money they are investing.