The Understatement of The Year

Greenspan Sees `Rethinking’ on CDOs After Losses

Although the equity markets regained their footing and have now surpassed the peak set this summer, the credit markets continue to be in difficult shape, highlighted by Citigroup’s announcement yesterday that they will take a huge loss based on writing down some of their credit assets.

I try not to be a cynic, but the more I think about this, the more it looks like the froth in the equity markets is benefitting the have’s (i.e. the slice of American’s who can afford to have a piece of this pie), while the have-nots are continuing to be left in the dust of a crumbling real estate market with their dollars depreciating against not only currencies of countries they may never visit, but also against stuff like oil, wheat, and platinum.

If this is true it comports with the concept of the rich having power over Washington and through that power the Fed…

But it also comports with the idea that the increased leverage in the system makes the equity markets more volatile – on both the upside and the downside – so that what we are seeing now is a volatile move in reaction to the base stimulus provided by the Fed.

I have never claimed to be able to predict the next move in something like the Dow or Nasdaq, so I won’t start yet…I just think if Greenspan is only now acknowledging CDO’s may have to be revised, we have a long time until the system digests just how bad things got in the credit markets. Some big investors tend to agree: Fed Fails to Restore Creditor Confidence, Pimco Says

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