Thursday, August 09, 2007

But I Thought All Was Well?

Wait, the shills at CNBC told me yesterday that all is well with the economy and the subprime mortgage mess and credit crunch will mean nothing because there is "excess liquidity out there" to handle the problems:

Stocks dropped sharply as soon as trading opened today after a French bank, BNP Paribas, suspended operations of three of its funds in the wake of turmoil in the American market for home loans and the European Central Bank injected cash into the financial system because of tightening credit markets.

The Dow Jones industrial average fell more than 200 points, or 1.5 percent, while the Standard & Poor’s 500-stock index and the Nasdaq composite index were down just as much.

The plunge came after a sell-off in Europe, which was prompted after BNP, the largest publicly traded bank in France, became the latest European lender to announce problems linked to the worsening credit market in the United States, where several large companies have already announced losses.

A German central bank meeting was under way to discuss details of a rescue package for the lender IKB, another victim of exposure to the crisis in subprime lending.

Jonathan Mullen, a spokesman for BNP, said that the credit squeeze in the United States had made it impossible to calculate the value of the underlying assets of the funds and that the bank was obliged by market conditions to halt holders of the funds from cashing out or new investors from buying shares in the funds.

“It’s quite exceptional to suspend funds, and it means that people can’t buy in or sell out of the funds,” Mr. Mullen said. “But we hope this is going to be temporary and that the market will come back.”

Mr. Mullen said that about one-third of the funds were exposed to subprime loans but that those investments were in high quality parts of that market. “We’ve seen no degradation in the quality of these assets, none of which have been put on watch for a downgrade,” Mr. Mullen said. “This is just a technical problem about liquidity.”

Only last week, BNP's chief executive Baudouin Prot, said his bank's exposure to subprime problems was "absolutely negligible."

This week he's suspending operations of three funds partly backed by investments in subprime mortgages.

Makes you wonder who else doesn't know how bad their exposure to the subprime mess is.

Oh well, the markets are starting to shrug this news off.

The Dow opened down 240 points on the news, but now it's only down 130 and the shills on CNBC continue to tell me that problems are "a little bit overblown."

Irrational exuberance and volatility in the markets continue.

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?