In 2006, banks issued more than $650 billion in loans for leveraged buyouts. In many of these cases, private equity firms put up only 20 percent of the purchase price, borrowing the rest from the banks.
Here too, financiers sold on much of the credit risk. But this doesn't exactly eliminate the risk. Instead, it suddenly pops up in places where it is least expected -- at state banks, for example, or smaller institutions seeking their piece of the pie. In this manner, the crisis in one market can spread around the world in no time. (its all so highly interconnected)
(the ******** that hit the fan is now being sprayed all over the friggin place - and FAST !)
and if a AAA rating doesn't mean squat now, what does "FDIC insured" really mean."In this crisis, investors and banks are now painfully realizing that an AAA rating, which stands for excellent credit quality, isn't always as dependable as it appears. "The rating agencies predicted exactly zero of the 10 biggest disasters of recent years," Hans-Helmut Kotz, the president of Germany's central bank, the Bundesbank, said as far back as 2003.
Despite this lack of dependability, banks like Germany's WestLB based their investment strategies on precisely these ratings. WestLB claims that 87 percent of even its second-class US mortgage loans, or subprimes, were rated AA or above. According to a spokesman, the publicly held bank "invested, across its entire commercial and banking portfolio, €1.25 billion in subprime securities." This enormous sum also includes the risks lurking within the WestLB's US subsidiary, Brightwater Capital Management. Despite its good rating, no bank today would trade places with WestLB in its current situation. The market has collapsed completely."
http://www.spiegel.d...99621-2,00.html
Edited by nimblebear, 14 August 2007 - 07:20 PM.
