A few days ago, in "The Derivatives Market Has No Clothes," I noted a report by MSN Money's Jon Markman featuring insights from Satyajit Das, one of the world's leading experts on credit derivatives. The article more-or-less confirmed what I and a few others already knew: in many respects, the multi-trillion-dollar over-the-counter derivatives market is little more than houses of cards.
Well, maybe it's in the stars, or may it's just coincidence, but a post today by one of my favorite bloggers, Yves Smith, who publishes the Naked Capitalism blog, has helped to illuminate the dubious underpinnings of another dangerous smoke-and-mirrors operation that has captivated stock traders and the financial press in recent years: the private equity industry. As Smith surmises in "Nursing Home Cost Cuts: A Private Equity Microcosm?" much of this talk about creating value out of dollops of debt and large helpings of hubris seems to have been just that: talk. Unfortunately, it has also had some potentially deadly consequences. Financial Armageddon.
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