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Is The Next Financial Crisis Nigh? Could Closure Of Third Avenue Fund Finally Explode The Post-Crisis Asset Bubble?

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http://www.telegraph.co.uk/finance/economics/12052433/Third-Avenue-could-be-the-event-that-will-finally-explode-the-post-crisis-asset-bubble.html

As every student of recent economic history will know, the first rumble of thunder in the Global Financial Crisis came with the collapse in the summer of 2007 of two large Bear Stearns hedge funds. Investors demanded their money back, but managers were unable to liquidate their positions fast enough to deliver.

These early signs of panic were to snowball into an all-embracing run on the global banking system, forcing central banks to flood the market with cheap liquidity to prevent mass liquidation and economic collapse.

Are we about to see history repeat itself? That’s been the question on everyone’s lips since the closure last week – or “shuttering”, to use the technical term – of the Third Avenue Focused Credit Fund, one of a number of funds set up to chase yield in a world of poor to non-existent rates of return. Two other smaller US funds have also since taken action to prevent investors removing their money.

It’s all eerily reminiscent of the events leading up to the credit crunch of seven years ago. Did we learn nothing from the greatest financial crisis in history; and by treating its symptoms with vast quantities of central bank money printing, did we not merely set ourselves up for the next one?

..

The latest bust should nonetheless serve as the loudest possible wake-up call. Swamping the system with cheap money may have saved the world economy from a depression, but by pumping up asset prices anew to unsustainable levels, it has also made the system more vulnerable to a financial crisis, not less so. The world economy has never been more awash with debt. In this sense, the high yield squall may well be a harbinger of much worse to come.

A bearish economic article in the Telegraph.

Something is going to kick off another financial crisis, the question is what?

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I think the question to be asked is why are these funds going out of business now?

The threat of rising interest rates? Is that it?

That and the general failure, again, of ponzi economics.

The whole world this time have been borrowing like lunatics, this has created more bubbles some of which have already burst and decimated the companies involved, again.

It has also wrecked the finances of more countries who can not longer keep the momentum going. No debt momentum means failure of more debt = more growth policies.

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I think the question to be asked is why are these funds going out of business now?

The threat of rising interest rates? Is that it?

The cost of money doesn't matter. Who cares whether it's 0.00 or 0.25 (not that an increase can be sustained without removing liquidity from the system). The quantity of money is what matters. And that is governed by and a result of a very, very complex set of interactions. The central banks are not the only actors - which the Keynesians naively assume - the markets themselves can create or destroy money/credit, just as the commodity and emerging markets and junk debt markets are doing now.

Another factor: The US Treasury withdrew $300 billion from the market in November. That had a significant impact. November began with the SPX at 2100. 6 weeks later it hit 2000. Perhaps the dealer and institutional liquidation to rebuild cash positions has run its course, but it's also triggered margin calls in other markets. That's obliterated lots of trading capital. We can't measure that until well after the fact. But the news contains the stories of runs on hedge funds and mutual funds resulting in shutdowns. All of this stuff can suddenly snowball.

That's how crashes happen.

Edited by zugzwang

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While we're just saying, it's "could've" or "could have". Not "could of" which makes no grammatical sense since "of" is not a verb.

i'M ...I'm ...am ...tinking of getin an english teacher are ya availability :rolleyes:

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As they are accepting any old words in the dictionary, and text speak, "Could of" will be allowed in the future.

E.g. OMG is in the dictionary.

Call it conspiracy (destruction of native languages), call it leftyness, call it dumbing down, but they could of stopped it.

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