Subprime Pain Sweeps the World
August 16th, 2008Via: Business Day:
MORE than 100 local councils, charities, churches, hospitals and nursing homes across Australia are sitting on a $2 billion black hole after buying subprime investments structured by Wall Street banks during the bull market but which are now potentially worthless.
Melbourne’s Metropolitan Ambulance Service and local councils are among those facing losses of hundreds of millions of dollars in the subprime meltdown because of bad debt they bought through a global investment bank.
A document leaked to BusinessDay revealed that Lehman Brothers is managing tens of millions of dollars in funds for Victoria’s community, education and health sectors, much of it invested in high-risk financial instruments now potentially worthless.
Other Victorian entities with millions in subprime exposure are not-for-profit defence personnel insurer Defence Health, which has $39 million managed by Lehman Brothers, and $17 million for the Victoria Teachers Credit Union.
BusinessDay has identified more than 150 government, private and charitable institutions that bought complex financial instruments such as collateralised debt obligations (CDOs). There have been few buyers for CDOs and similar structured finance products since the subprime meltdown this time last year that sent global financial markets into a tailspin.
These toxic investments will wreck the finances of many local government and charitable organisations for years.
Twenty-three local councils are preparing a class action lawsuit against Wall Street bank Lehman Brothers to recover their losses.
Among those that bought the products are four universities, dozens of super funds, ambulance services, the St Vincent de Paul Society, the Starlight Children’s Foundation, the Boystown charity for underprivileged children, and the Anglican, Baptist, Uniting and Catholic churches.
Related: “We Americans Were Very Clever”
Research Credit: IL
That brings up a question I’ve been wondering about: since Wall Street has now fleeced much of the world for the second time in a decade, why on Earth would anyone elsewhere in the world want to do business with the U.S. investment industry again? And if they do come to their senses and stop doing business with Wall Street, won’t this surely cause the U.S. balance-of-payments deficit to quickly grow so out of whack, that the dollar will finally sink like a lead ballon?