This is a mark to the markets anticipation of a crisis crisis
Sir Wolfgang Münchau tells us that “Central bankers cannot stop this contagion” March 10 and he is right; how could they?... when no one is really sure about what is going on in that no mans land between the primary financial asset such as a subprime mortgages or municipal loans and their final expression in the financial markets in the form of some type of sliced and diced derivative contract.
For instance Münchau speaks about a “hugely contagious solvency crisis … spilling over into municipal debt, corporate debt” though we have yet to see any significant municipal or corporate debt defaults. This is not a mark to market crisis; it is more a mark to the market’s anticipation of a crisis crisis.
Therefore, central bankers should stop throwing real money at anything virtual that hurts, like blindfolded children trying to hit a piñata; and carefully keep their monetary munitions for the many real world problems that could break out down the line… like those very real subprime mortgages that have already started to default.
For instance Münchau speaks about a “hugely contagious solvency crisis … spilling over into municipal debt, corporate debt” though we have yet to see any significant municipal or corporate debt defaults. This is not a mark to market crisis; it is more a mark to the market’s anticipation of a crisis crisis.
Therefore, central bankers should stop throwing real money at anything virtual that hurts, like blindfolded children trying to hit a piñata; and carefully keep their monetary munitions for the many real world problems that could break out down the line… like those very real subprime mortgages that have already started to default.
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