Cracking the Credit Market Code
Henry Maxey, April 2007
Anyone with a cautious disposition has a sense that there is fragility within the US centric financial world: too much debt, excess consumption, record deficits, carry trades, ubiquitous hedge funds, monstrous derivatives markets…
Yet complexity in the interrelationships and instrumentation confines most cautious commentators like us to broad statements about the obvious dangers that these symptoms present. The facilitating mechanism appears to be, to quote Churchill, “a riddle, wrapped in a mystery, inside an enigma”. But now the subprime mortgage ‘pop’ has knocked the lid from this ‘black box’ and we have had our first opportunity to observe the mechanics of history’s most excessive credit binge. It is our contention that the magic of the mechanism is nothing more than fallacy of composition, wrapped in moral hazard, inside Myopia Hedge Fund Partners LLC. Hence this report.