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Realistbear

Merv: Be Careful What You Borrow & What You Lend

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http://uk.biz.yahoo.com/21062007/325/king-...s-cautious.html

Thursday June 21, 06:36 AM

Reuters

King warns borrowers and lenders to be cautious

LONDON (Reuters) - Borrowers and lenders need to be cautious because excessive leverage has been the common theme of previous financial crises, Bank of England Governor Mervyn King warned on Wednesday.
In a speech to the annual Mansion House dinner for London's financial elite, King also repeated underlying inflationary pressures have been disguised by volatile energy prices, suggesting he still sees the need for higher interest rises.
But the main theme was easier credit conditions. King said some of the important risks that could affect all financial instruments -- from terrorist attack to flu pandemics -- are almost impossible to quantify.
"Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight. Ignore the unsolicited emails that rain down on us offering unwanted credit," he said, according to the text of his remarks.
"The development of complex financial instruments and the spate of loan arrangements without traditional covenants suggest another maxim: be cautious about how much you lend, especially when you know rather little about the activities of the borrower."
Concerns have been mounting around the world that years of low interest rates has encouraged a climate of risk-taking, fuelling an asset price boom that may not be sustainable as borrowing costs rise or conditions change.
King said that it might say "champagne, AAA (Xetra: 722800 - news) , on the label of an increasing number of structured credit instruments. But by the time investors get to what's left in the bottle, it could taste rather flat."
"Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than in the financiers of the past," he said.

Nice statement about the obvious. Too late Merv you and the muppets have been fueling the problem for years. Er, Gordon has.

Bottom line from Merv: Great Crash 2 is here and its about to blow up in our faces.

Edited by Realistbear

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