With the market drop leading last night’s news, I thought I should put off the Lenovo Vista kvetching until Monday. You can always watch the Vista clip again if you need a laugh in the meantime.


To get a sense of whether last month’s financial crisis is over (it’s not), take 10 minutes to read David Einhorn’s comments of October 19.

Subprime mortgages will continue to default, he says, even as home equity loans (which are second mortgages) become increasingly less creditworthy. (Right? As home prices fall, there is less equity for lenders to fall back on in case of default.)

Nor are the problems confined to housing. Einhorn describes mega-corporate ‘covenant-lite’ and ‘PIK-toggle’ loans that he says ‘are quite parallel to the now criticized ‘no-doc’ and ‘pay-option’ terms that everyone agrees were ill conceived in the residential market.’ The only difference? ‘That we haven’t seen the losses yet.’

This can’t be good for Wall Street, and that can’t be good for the housing market, and that can’t be good for lenders – and round and round it may go.

Much of Einhorn’s presentation concerns the for-profit bond-rating agencies. They under-rate municipal bonds (which means taxpayers have to pay perhaps $5 billion a year more in interest costs than they should) . . . but, of far greater significance, they over-rate the credit-worthiness of corporate debt and collateralized debt obligations (‘CDOs’) – and debt insurers – all with scary implications.

Four things that seem likely: Short-term interest rates are likely to keep falling (though who knows whether investors will accept low long-term rates, which the Fed cannot control); the dollar is likely to keep falling; foreign companies are likely to use their strengthened currencies to acquire U.S. assets and corporations; Americans are likely to bristle at this, believing it’s fine for us to own their banana plantations, but not for them to own ours.

It’s a good time to be cautious, and one more reason to get back to basics, like eating right, exercising, and being good to your friends. (I watched Oprah today.)

Have a good weekend.


Comments are closed.