15 February 2010

WESTERN GOVERMNETS IN DENIAL

The problem with western governments, according to GMA’s John Sheehan, is that they’re in denial “Distressed debt is my measure-I know what it’s generally worth because I spent several years buying and selling it. I estimate that what the USA paid almost 100 cents in the Dollar for is really worth less than 20 cents. It was done to keep the inter-bank markets liquid when my former employer, Lehman Brothers, failed. Right now USG agencies have acquired or guaranteed around US$ 5 trillion of debt assets (out of a total market of less than $9 trillion) but in reality these may be worth less than $ 1 trillion. To avoid a $4 trillion loss, the Fed and the Treasury Department are having to plan to hold these until maturity. That won’t avoid the loss but it will mean that it doesn’t come out for many years. Meanwhile in the UK Northern Rock chief executive Gary Hoffman told MPs that it could take up to 20 years to clear “bad bank” Northern Rock Asset Management’s mortgage book and repay the Government loan. That’s the legacy that’s been left for the next generation it will take 2 decades to repair the damage done by sub-prime excesses.