Now that a number of banks and brokerages have taken large write-offs after assessments of the falling value of mortgage-backed and LBO debt, things are supposed to get better. Auditors have looked at the extent of the damage and the Fed is putting cash into the system to improve balance sheets.
But a lot of the smart money does not see it that way. The International Monetary Fund said that the total damage from the crisis will be $945 billion. That would mean that the housing market will get much worse along with defaults on corporate and consumer debt.
Now, in rides George Soros, iconic hedge-fund manager and a billionaire many times over. He says the credit crisis is only in its early stages. In a conversation with Bloomberg, he said, "This is a man-made crisis and it's made by this false belief that markets correct their own excesses. It will take much longer for the full effect of the decline in the housing market to be felt.'' In other words, hike up your pants and buy a boat. The flood waters are getting much higher.
No one knows whether the IMF or Soros is right. Comments from management at Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) seem to indicate that they see things getting better in the second half of this year.
Even so, we should pay attention to Soros's more pessimistic prediction. Those forecasting worse times are not idiots and need to be, at the very least, listened to carefully.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
4-11-2008 @ 4:57AM
thebigkill said...
"We’ve seen yet another historical cycle of excess risk-taking—in this case, concentrated in financial innovations in credit and structured finance served up and consumed without regard for the downside—followed by extreme risk aversion.
"This round of speculation and financial amnesia seems to have been driven by a combination of factors, including an over-reliance on statistical models and rating agencies, excessive liquidity and perverse incentives compounded by an excess of complacency.
"In assessing the situation, don’t let anyone convince you that we’ve entered a 'new era.' The details may be different, but we’ve been here before. Allow me to temper the ego of the present by recalling the not-too-distant past and the events that happened right here in Texas..."
- The Seasoned Richard W. Fisher, Dallas Fed President
http://www.dallasfed.org/news/speeches/fisher/2008/fs080409.cfm
4-11-2008 @ 3:10PM
Rob said...
There is a recording of George Soros speaking about the credit crises and his new book at http://www.georgesoros.com/creditcrisis08