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This Contagion Began With an Epidemic of Cheap Money...
by Jack Crooks (May 8, 2008)
As you know, this sub-prime crisis has both individuals and institutions scraping to keep their books in the black. And quite frankly, they're barely managing.
Institutions from UBS to Citigroup have already written billions off their books. Earlier this week, Fannie Mae - the second largest mortgage lender - just recorded another US$2.19 billion loss for the first quarter.
Meanwhile more than one-quarter million American homes are in foreclosure right now, and the number of new filings rose 57% in March alone! And insiders are saying this credit crisis is going to spread and force Americans to default on car payments, leases and credit card debt.
So who - or what - is to blame for what's being called the greatest financial crisis since the Great Depression? Strangely it's all tied back to not only derivatives - as I explained yesterday - but also the currency markets. Or more specifically, the carry trade.
Yesterday, I introduced you to the mechanics of the carry trade. Now let me introduce you to the quintessential carry trade currency, the Japanese yen and its starring role in the sub-prime crisis, and the next Great Unwind. (Read on)
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