Tuesday, December 11, 2007

The stampede starts to turn

Back in the days of the Old West, during the long cattle drives from South Texas up to Kansas or beyond, there was no question of if the cattle would stampede -- it was a matter of when. Any sudden noise, from a dropped cookpot to a clap of thunder, could set the longhorns off.

Once a stampede was under way, there really wasn't anything that could actually stop it. Thousands of cattle would be running like mad.

The only way to get the herd back under control that I heard of was to ride to the front and to the side of the stampede and start firing shots into the ground. The idea was to make the herd turn and turn again, until the stampede was essentially panicked cows running around in a circle. After awhile, they'd get tired of running and go back to "normal."

If a "herd mentality" was to blame for the "credit crunch", then you can see the stampede starting to turn in this article from Forbes. Essentially a French bank, finding that it can't sell its SIV, is taking over the fund itself.

Here's the money quote:
About 9% of the fund's $4.3 billion portfolio of investments is made up of securities backed by American subprime mortgages, and investors are wary of investing in anything that is backed by to subprime debt because of the growing number of defaults in the United States.

If half of that debt went bad, the fund would be off by 4.5%. Yet investors are so skittish that they're not willing to pay anything over firesale prices for that risk.

While no one wants to lose 4.5%, it beats losing 50%, or more. Investors in Societe Generale are responding positively to the move, and stock prices in the bank are going up on news of the move.

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