Some instruments are so complex that it can take investment banks' computers entire weekends to value them!
Even as a measure of calm has returned to the financial markets, cautions are being sounded. The president of the Bundesbank described the events as “a classic bank run” — but on a different class of financial intermediaries like hedge funds, conduits, SIVs and SIV-lites. In the US, the number of foreclosures in the current year is expected to go up to 2 million, up from 1.2 million last year. This means that one of every sixty house-owners will be thrown out of his/her house, a rate not seen since the Great Depression of the 1930s. And, this is not the end: as many as 2.5 million adjustable rate mortgages (ARMs), where the initial rate was kept low to attract the borrower, are due for re-pricing next year. Quite often, a fall in home prices has been followed by recession. Could we see history repeating itself this year? There are some signs: US car sales in August showed a fall.
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