Another Bank Falls, Part II

Here's the latest incredible news from the economic and financial powerhouse known as the UK; the Bank of England (BOE) have announced that 'they don't understand the new, complex credit markets'. What a confession? My advice would have been; keep your mouth shut and let everyone think you're a fool rather than opening it and removing all doubt. Now, that breeds confidence, doesn't it?

So, to the credit markets; what's to understand? You take basic, straightforward paper. The investment banks then climb into it, slice and package it up, all the time trying to conceal its true nature, make it's exact constituents too obscure to allow proper analysis, pay off the rating agencies, apply leverage and sell it to gullible investors. Suddenly, from a simple debt obligation, you've created a myriad of new, leveraged securities whose combined, notional values, far exceed the nominal base paper. Then comes the real clincher. These securities are so 'complex' that they can only be valued using mathematical models. To translate, this terminology simply means, 'these securities don't trade, so no one knows if there's any true market or economic value'.

That, my friends, represents the 'new, complex credit markets'. What it really reveals is the stupidity of policymakers and the staggering incompetence of so-called market regulators.