Wednesday, April 2, 2008


THE FED'S END RUN: "So, we are facing falling dominoes around the world. This is the result of the carry trade: borrowing short and lending long. This is what brought down the American savings & loan industry in the 1980's. Decade by decade, carry-trade investing has spread to wider areas of the economy. It has spread across borders and across industries.

The hoopla in Washington over having the FED lock the barn door is not going to get the horses back. The loans were made. They cannot be recalled. Foreclosing on two million households at tens of thousands of dollars of legal fees per home is not feasible. The loans may be able to be renegotiated in some cases, but this takes time. It takes trained personnel. Meanwhile, 244 of the companies that initially made the loans are bankrupt or have merged. Renegotiated terms of repayment at lower rates will impose capital losses. No company wants to post these losses on its balance sheet."

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