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Gebbeth

The Game Is Up

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The game is up

THE old-fashioned financial system was like Old Maid, a parlour game once beloved of small children. The banks were like players, dealt hands from a pack of cards, which they swapped among each other. At the end, one player was left holding a lonely queen—a bad debt, if you will—and lost. Over the past few decades the game has changed. Securitisation has snipped the old maid into pieces; new faces, such as hedge funds, have joined the party, enabling the banks to distribute those pieces among a larger number of players. When the game is over, lots of players are left holding small losses instead of one player holding a big one.

During two exceedingly prosperous decades, that theory seemed to work just fine. But the swings in almost all financial markets this month have made dispersed risk suddenly morph into dispersed mistrust. The uncertainty has been magnified by the way that bad risks have become so hard to value. Investors have bought asset-backed securities that use shaky subprime mortgages in America as collateral, but as defaults have risen, the value of that collateral has tumbled.

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Seems like financial derivatives may be the new DotCom. This sector could be effected for years - no more cheap credit for a while then

Now "The Economist" decides to tell us...

doh!

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If BoE are not going to increase interest rates, and banks will only lend out at rates above Central Bank rates, I predict the death of the Lifetime Tracker Mortgage, or at least those offering Base + 0.14%, which Woolwich were doing. In fact, looking on their web site, that has already ticked up to +0.17%. A small move, but a significant one I think.

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Now "The Economist" decides to tell us...

doh!

Whilst taking a dump the other day I was flicking through an April 07 copy of the economist. Basically summarised everything that we are seeing now e.g. sub-prime meltdown, re-assessment of risk, changing paradigms in relation to securtitization and so on. I pulled everything off the markets a few months ago and advised others to do so....

The writing has been on the walls for months now, the chatter has been increasing.

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...an April 07 copy of the economist. Basically summarised everything that we are seeing now...

I think it might have been that article that turned me.

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Seems like a sound principle though, spread the risk. Okay the lack of transparency and excessive greed blinding people to that has rather spoiled the underlying principle, but packaging and spreading risk is a time honoured tradition.

Worked for Lloyds for a while anyway, even if everyone screwed up a bit in the 80's.

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Now "The Economist" decides to tell us...

doh!

To be fair to them the economist have been raising very bearish concerns about the global housing market (and particularly the US and UK) for 3 or 4 years.

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