Dom, Bankers are of the opinion that by raising rates to their highly-margined speculator friends, that they will remain solvent. <G>
The simple fact is, until LTC hit the wall, these gamblers were treated as prime borrowers. Now, the prime has a risk tail attached.
And, since so many have been long some derivative mortgage garbage and short treasuries, they really can't afford a short term borrowing hit to hold the positions. The main point is, these guys have been on the wrong side of the spread and they are margined to the max.
Yes, there will be more bankruptcies even with a huge Fed rate cut.
Now, in the interest of fair play, I have to mention that I have also been on the wrong side of the spread in my income portfolio. I was long German bonds and short Treasuries and that has been a lousy trade. The difference is, it is 5% of the income portfolio, not leveraged and my equity income spreads have worked so well that I didn't even notice the problem with my EuroTrash position or with my bear credit spreads in Treasuries. <G> These guys ought to learn a magic phrase: diversification without leverage.
MB |
