When one asset bubble bursts , another begins
There are two questions raised by the excerpt, both dealing with the question of perception and reality.
First is, were there successful banks and investors which were then turned to dust, or where they always dust, and simply PERCEIVED as successful because of the false valuations?
Second, related, is, have we really “lost” 10 trillion in value, or did that value never exist in reality at all? In this second case, I think it’s clear the answer is that we NEVER HAD that $10 trillion, that anybody who ever tried to convert any sizable portion of that into a “safe investment” would have failed and caused what happened last year to simply happen earlier.
I’ve lived in my house for about 12 years. According to the county, it is currently worth about 25% more than I paid for it. But according to the market, it was at some point worth over twice what I paid for it, and I have “lost” significant “net worth” in the past two years.
But I have the same house I had 2 years ago, and 10 years ago. It simply carries a different assessment of cash equivalent value.
I've been thinking for some time that corporate bond funds make a lot of sense when the market is down this far from it's highs. While the market churns up and down with every Obama policy change corporate bonds just keep paying dividends - unless, of course, if they go belly-up. If the state of the economy really isn't as bad as we are being told then corporate bonds are a steal at today's prices. If things are really worse - well I don't even want to think about it.
I'm curious what other Freepers think about the bond market in general and where the best investments are to be found.
That is one of the best (complete, concise, readable) explanations of CDO/CDS that I have seen.
Thanks for the post.
>> Many insurers of municipal debt had strayed into these exotic products, wrapping their bonds in insurance in an attempt to secure credit at lower prices.
It will be interesting to see how the debt crisis plays out vis a vis municipalities.
I’m fearful that bailing out municipalities will be the final nail in the coffin of American can-do capitalism, forcing even “red” states and “conservative” counties into Bambi’s socialism corral.
The author speaks many half-truths, particularly in how he lumps ALL bonds together, regardless of the issuer, regardless of the financial context, regardless of the price and earnings rate.
The fact is, that currently, major American corporations, OUTSIDE the financial sector, raised nearly $900 billion in new bond issues in the first quarter of 2009.
As to the “$10 trillion” American’s “lost”, that is less than a half truth.
It is all “market value” not realized, converted-to-cash-in-hand value. It was a value that existed on paper before and as it exists now. The only portion of that supposed “$10 trillion” that was or will be actually “lost” to anyone is that portion someone has been, or will be, forced to accept by selling something at a value far less than what they paid; a value which also in most cases was less than the high of their portion of “$10 trillion” at the top of the on-paper-only-bubble.
For a good many people, they will never “lose” any of their portion of the “$10 trillion”, because when they do finally feel the need to sell, the market they are selling in will have regained or surpassed it’s “$10 trillion” market value.
Even my pension account, which has dropped 30%, will regain or surpass its value at the “$10 trillion” mark, and most likely do so before I am 65 - even with no further contributions from me or the employer.
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