Culprits leading to the sub-prime crisis
1. Mortgage firms, for doling out mortgages to anyone and everyone. Just to “meet targets”. Without realizing that they are giving loans and not doles.
2. Credit rating agencies – for randomly giving high ratings to mortgage-based CDOs, without really bothering to find out what was underlying. The structures were complex, I agree, and there were some Nth order derivatives. Still, the job of the rating agencies was to get down to the bottom of it and figure out what lies beneath and rate that. Spectacular failure. They were instrumental in spreading the risk around the industry, and increasing the absolute volume of risk.
The effects of the sub-prime crisis have spread well beyond the financial industry, even into sport. FC Liverpool got LBOd about a year back. Two American businessmen, George Gillet and Tom Hicks, bought over the club about a year back. The bridge loan that they had taken to fund the deal is about to expire and they are yet to tie up long-term funding.
The SWF from Dubai, DIC, is ready to step in and buy out the club from these two American jokers. Their CEO Sameer Ansari is a Liverpool fan which means that they should take better care of the club than these Americans who are purely financial investors. And now they are saying they are holding on “for a good price”.
And Baada sends me this. Apparently Hicks says he’ll invest the money he makes from Liverpool to strengthen Texas Rangers.
If Liverpool FC were in Calcutta, you’d’ve had millions protesting to limit FDI in football clubs!
And coming back, it seems to be a bad time for LBOs. Even Tata had some trouble tying up the long term finances for the Corus acquisition. I read that good old SBI had to step in in the last minute to make up the deficit.
And given that my current employer got LBOd a while back, I have reason to fear.