The sub-prime mortgage market is a blip compared to the credit default swap market. And this is where I believe, and a few others, the next problem will occur. If the US keeps pumping money into the system then ultimately this is going to cause inflationary pressures and increases in interest rates. Then we have an issue.
Given the tight margins many of these banks run on (particularly the merchant banks) then any default on one of the loans is not only a problem for one bank but possibly for the others because what happened was as follows
Italy company $2B in borrowings
Bank A takes over risk of loan defaulting for $2b. Bank A then sells the same debt to Bank B and Bank B takes over risk of loan defaulting for $2b. Bank A takes a nice fat fee along the way. Bank B then did the same with Bank C and so on.
Now the problem is that this has a cascading effect. If company in Italy defaults then Bank A is left with a $2b loan outstanding. This is what ultimately led to the pumping in of money to the banks because this market is in the trillions not billions. Now is Bank A folds then it flows down to Bank B and then if Bank B folds onto Bank C. The premise was that the loans would not default or if they did Bank A would just pick up the tab. Well the problem is that Bank A and many of the other banks don't have sufficient capital to wear these losses. Particularly when we are talking trillions.
So watch out for credit default swaps. The sub-prime is nothing compared to that market.
If you believe such, then how best to profit from the coming events?
A friend who is into RK has been big on silver..since RK's comments on gold & Silver, how has it performed?I've read a little more on Kiyosaki so perhaps I can comment.
He is also big on gold and silver. Says that twice in the past America has had a currency crisis, & people bought gold up until the value of gold held by the treasury was worth the same as U.S. currency in circulation. His comodities advisor has calculated that given the amount of currency created since the GFC that if people were to buy gold upto it's 'gold standard value' today it would hit $15,000 an ounce.
wow- never occured to me we were going into a new decade. not much fuss has been made of this. good bye naughties, where are we now, tennies, tenners, tantalising tens? can't til we get to a catchy sounding decade - roll on the roaring twenties!
Me neither..!!