Replies to post #31951 on The Black Box

[michalel97123]

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Rather, it’s the credit “crisis” that is the worry du jour, and the news out of France today that PNB Paribas (a large French bank) has some sub-prime loan exposure sent London, Paris and Frankfurt markets down dramatically before they closed off about 2% each.



The sub-prime worries are getting a bit out of hand, though. To give you one idea of just how far this crisis mentality is going, there was a story on the home page of the Wall Street Journal’s website this morning (it wasn’t in the paper) that made it sound like money market funds are on the verge of “breaking the buck” because of sub-prime conduits in some of the commercial paper they own. The fact is, however, that the Journal doesn’t cite a single money fund that it says currently owns any of this paper. They name two funds that did hold some conduits “earlier this year” but also note that the holdings were quite small, given the size of the funds.



Whether it’s a couple of money market funds, a French bank or a U.S. hedge fund, the fact that the sub-prime mess is spread so broadly around the financial industry may be its saving grace. Remember that when Merrill Lynch, for instance, reported earnings recently, they were relatively unscathed by the sub-prime problems that were said to have plagued it due to its relationships with hedge funds like those at Bear Stearns. Other financial behemoths have also come through with earnings better than just “intact,” and the only real failings have been among the mortgage brokers themselves. Investors are simply shooting first and failing to ask questions at all — which unfortunately is par for the course, I’m afraid.