sub prime mortgage

ALAN KOHLER, PRESENTER: It seems to me the American sub-prime mortgage market has been a kind of bordello for the world's bankers.

One by one they have nervously, perhaps excitedly, pushed open the door to find a joint that is rocking. Hedge funds, LBO funds and other big spenders have been whooping it up with seductive mortgage securitisers. In the corner, Ben Bernanke tickling the ivories. He is, of course, the piano player in the brothel.

Recently a few of the hedge fund lads who had been imbibing heavily clutched at their hearts and keeled over. A hush fell over the crowd.

And then on Thursday the snooty French bankers called in the police. BNP Paribas said, nose in the air, "the complete evaporation of liquidity in certain segments of the US securitisation market has made it impossible to value certain assets fairly, regardless of their quality or credit rating." They also ordered three of their own partying funds to put their clothes back on and go home.

In the ensuing panic, good-time charlies of all description rushed for the exits while the central bank police ran around blowing their whistles and calling for calm.

The credit crunch that the world is now experiencing flows from directly from the fact that the credit markets had become an incomprehensible, highly leveraged, fragile, party. Spreads, or borrowing costs, fell too low, and they're now correcting.

The effect of this on the real world is unpredictable. Nobody knows whether it affect the economy and therefore corporate profits. And nobody knows what's been going on in the back rooms of the bordello, and therefore others are about to keel over from over-indulgence.

It's a correction that had to happen, but that doesn't mean it's any good. It's not - it's terrible and frightening.

But it seems human beings always chase too much of a good thing.


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