Saturday, August 11, 2007

Liquidity crisis

French bank BNP Paribas said:

“The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly, regardless of their quality or credit rating.”

Rather backasswards, n’est-ce pas?  It is the worthlessness of huge chunks of securitized American mortgages which has made large American hedge funds insolvent – though no one has looked closely for fear of what they might find – which in turn is affecting the perceived solvency of large American financial institutions, so much so that the Europeans are balking at making even extremely short term loans to them.  The evaporation of liquidity is not the cause of the inability to value the underlying assets; it is the worthlessness of the underlying assets which is leading to the evaporation of liquidity.  No bank wants to be left holding the bag when the whole mess comes crashing down.  There is a good comment from ‘bookie’ on a Metafilter thread.  It is an open issue whether the regulators can sort this thing out before the disaster.

Of course, late capitalism thrives on making huge profits by taking huge risks, secure in the knowledge that the taxpayers will have to bail everyone out when the shit hits the fan.