Tuesday, March 10, 2009

World has lost $50 trillion in "Phantom-Zone" wealth; bonds are still risky; Credit it tightening again; too many zombie companies around?


The Washington Times led off this morning (Tuesday March 10) with a headline story “World loses more than $50 trillion: shrinkage equals year of output” by David Dickson. I seem to recall that the entire potential “term life” market was $40 trillion in some Primevest spiel back in 2003. The culprit is too much consumption based on too much debt, with assets simply built out of debt. The link is here. Hello World!

Monday (March 9, 2009), Liz Rappaport and Serena Ng ran a front page story in the Wall Street Journal, “New fears as credit markets tighten up”, link here. The concern was that LIBOR is rising, (reference site) as well as the TED-spread. It sounds like the credit markets have spells of angina pectoris and could benefit from coronary bypass surgery -- join the David Letterman Zipper Club.

The real significance of the story seemed to be weak bond prices, which affect ordinary investors and retirees who had thought they were “safer” in bonds. Junk bonds may be as “safe” as higher rated ones again, and many of those even in stable companies have fallen in value even though they are paying.

Then Bank of America president Kenneth D. Lewis wrote a piece “Some myths about banks: Nationalization would undermine confidence in the financial system” on p A19 of the Monday WSJ, here. Lewis writes that “the companies that did the most to cause this mess are gone” but then what about AIG? It’s still there. Ali Velshi on CNN is always saying that nationalization is not really nationalization; it’s just government buying up preferred stock and sometimes common shares, and driving out the senior debt.

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