Thursday, October 13, 2005


On little cat feet, in crept the Crash...

No one knows when the financial system will crash. But when it does, it will arrive with headlines just like these: World's hedge funds face crisis as Refco suspends trading · Leading global broker admits 'liquidity problem' · Billions of pounds could be tied up in frozen deals The story is almost as old as Adam and the serpent. Fraud charges have been filed against the former CEO of Refco, Phillip Bennett. He used a hedge fund to hide $430 million in debts. Refco, which has $642 million in debts, has halted trading for 15 days. If you happen to have placed a sale order to finance your heart bypass operation, best of luck to you for the next 15 days. The volume traded by Refco is enormous. In December-February, it traded $111 B. The actual capital backing it is a miniscule fraction of that. And there's no transparency. Worst of all, instead of Clinton-Rubin at the helm, we have Bush-Snow. The one good sign: Refco appointed Arthur Levitt of US SEC fame and Eugene Ludwig, who dealt with the Allied Irish Bank fraud. Because of that, and that alone, I suspect this is not the Crash. But next week, or a year from now... or even from one of the dominoes that Refco will inevitably topple, that Crash will arrive on little cat feet.
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