Replies to post #116338 on ajtj99's Market Pulse

[ajtj99]

jd, I think you're overlooking one common element in both situations - the counterparty risk.

In Japan cross-ownership of corporations was quite common, so the inbreeding kept the loans from being written down.

Now the credit default swaps and other derivatives create a similar situation, and nobody wants to deal with the huge uncertainty of counter party risk with the credit default swaps, so we're left with zombie banks and investment banks because the alternative could be a global financial meltdown from the unwinding of the credit default swaps and other exotic derivatives.

In that respect, it's much worse than Japan in the 1990's.