Word: banking
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...this is, as Barings' Khiem says, a lack of information. It all started as a problem that seemed both predictable and containable: U.S. borrowers with bad credit history started (surprise, surprise!) defaulting on their mortgages. But that meant trouble for more than just the mortgage company or the bank that made the loan originally. Since the 1980s, individual mortgages have been packaged into bundles (so-called mortgage-backed securities) and resold to investors. Soon after came so-called derivatives, exceedingly complex investments that often trade based on the relationship between two or more underlying markets - mortgage-backed securities...
...problem is, now that this market has collapsed, figuring out who owns all this worthless paper. Think that's easy? Two weeks ago, no less than the CEO of BNP Paribas, the big French bank, said, in effect, no worries, folks. Its exposure to this stuff was, as he put it, "negligible." Yet last week, BNP had to shut down three of its own investment funds because of its exposure to investments linked to the subprime debacle. When the CEO doesn't know, that is the very definition of "not knowing what we don't know...
...that this phenomenon is limited to Europe. South Korean and Taiwanese banks got hammered on their respective stock exchanges last week because of fear - based, again, on a lack of knowledge - that they had bought a lot of paper tied to the subprime debt market. And in Hong Kong, Goldman Sachs issued a warning recently that some of the biggest mainland Chinese banks that trade on the Hong Kong exchange - including the Bank of China - were also exposed. In early August a spokesman for the BOC had said its first-half losses tied to subprime investments were "minimal...
...wonder that last week, central banks - like a frazzled mother jamming a pacifier into a wailing infant's mouth - rushed in to try to calm the incipient panic, shoving $300 billion of fresh cash into the credit markets to make sure they didn't seize up entirely. (The Bank of Japan and the eurozone's European Central Bank both pumped in additional funds on Monday.) For the moment, the moves had their intended effects: following minimal losses in New York on Friday, Asian and European bourses on Monday traded mostly higher. Knowing now that central banks are willing to step...
Deposed in a bloodless coup last September, Thaksin has acquired quite the post-power diversion. Last month, he bought Manchester City Football Club for $162 million - mere pocket change compared with the roughly $2 billion in funds Thai authorities have frozen from his family bank accounts. The military junta now controlling Thailand condemned his acquisition of the team - Thai courts have slapped Thaksin, who made his fortune in the telecom business, with corruption and abuse-of-power charges stemming from his time in office. On Tuesday the Thai supreme court issued a warrant for Thaksin's arrest for failing...