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1. In one way, I'm sympathetic
to the institutional reluctance to face the music. I'd give a
lot to mark my weight to 'model' rather than to 'market.' - Warren
Buffett, Fortune, 8/16/07 (On the financial institution practice
of valuing subprime assets on the basis of a computer model rather
than the free market price.)
2. The Federal Reserve
was not founded to bail out Bear Stearns or a few hedge funds.
It was founded to keep a stable currency and maintain its value.
- Jim Rogers, Rogers Commodity Fund
3. For the second time
in seven years, the bursting of a major-asset bubble has inflicted
great damage on world financial markets. In both cases--the equity
bubble in 2000 and the credit bubble in 2007--central banks were
asleep at the switch. The lack of monetary discipline has become
a hallmark of unfettered globalization. Central banks have failed
to provide a stable underpinning to world financial markets and
to an increasingly asset-dependent global economy. - Stephen
Roach, Morgan Stanley
4. There is a lot of pain
still to be had in the equity markets, particularly aimed at
the risky end of the spectrum. We think the fair value on the
market is about a third lower in the U.S. . . - Jeremy Grantham,
Grantham, Mayo and Van Otterloo
5. Suddenly, the world
is realizing that gold is still a safe haven asset. We've seen
pretty substantial losses in equity markets. I think this is
genuine safe-haven buying. - James Moore, theBullionDesk
6. I think Greenspan would
have cut rates already. So I do think things are beginning to
look different at the Fed. - Paul Kasriel, Northern Trust
7. At this juncture, the
impact on the broader economy and financial markets of the problems
in the subprime market seems likely to be contained. - Fed
chairman, Ben Bernanke, Congressional testimony, March, 2007
8. "If prices go
down, we will have problems -- problems in the sense of spillover
to other areas," Greenspan said. While he hasn't seen such
spreading yet, "I expect to." - Former Fed chairman,
Alan Greenspan, speech, March, 2007 as reported by Bloomberg.com
9. This is not a rescue.
- Goldman Sachs Chief Financial Officer David Viniar after
Goldman poured $3 billion into one of its hedge funds
10. This is a sort of preemptive
rescue. - Eric Kuby, chief investment officer for the Goldman
fund mentioned
11. When you're in a pit,
the first thing to do is to stop digging. - James Ellman,
Seacliffe Capital
12. The US financial system
is teetering.  Its
USDollar currency is losing global support, with some outright
revolts in crucial territories. The chief private sector export
from the US financial sector has been fraud-ridden asset-backed
bonds and their toxic credit derivatives. What should anyone
expect? For years an institutional dishonesty within all things
financial in the United States has been engrained, spreading,
and become integrated with high levels of the USGovt. The Wall
Street hucksters exported fraud. The backlash might be more severe
than the soft soap gurus anticipate. Look for an international
boycott. The shock waves in the US financial markets are preliminary
symptoms of bigger events soon to come. Stability identified
is nothing but quiet between tremors. - Jim Willie, Hat Trick
Letter
13. The German banks' situation
is not uncritical. - Alexander Stuhlmann, Germany's Landesbank
14. After all, in a credit
crunch, cash is deemed to be king. In which case, gold owned
outright has just been crowned emperor. - Adrian Ash, BullionVault
15. [C]apitalism without
financial failure is not capitalism at all, but a kind of socialism
for the rich. - James Grant, Grant's Interest Rate Observer
16. US sub-prime is just
the leading edge of a financial hurricane. - Bernard Connolly,
AIG
17. When the music stops
in terms of liquidity, things will get complicated. But as long
as the music is playing, you've got to get up and dance. We're
still dancing. - Chuck Prince, Citigroup
18. Why is it possible
to rescue S&L buccaneers in the early '90s and provide guidance
to levered Wall Street investment bankers during the 1998 long-term
capital management crisis, yet throw 2 million homeowners to
the wolves in 2007? - Bill Gross, Pimco
19. So perhaps the most
worrying single remark made by a responsible banking official
during the current crisis came from Jochen Sanio, the head of
Germany's banking regulator BaFin. He warned on Aug. 1 that his
country could be facing the worst banking crisis since 1931 --
a reference to the collapse of Austria's Kredit Anstalt, which
provoked a wave of bank failures across Europe. - Martin Walker,
United Press International
20. Angelo Mozilo, chief
executive of Countrywide Financial Corp, which is one of the
chief victims of the sub-prime home loan debacle, said the housing
crisis was the result of "one of the greatest panics I have
ever seen". When asked if housing would lead the US into
a recession, he said: "I can't believe ... that this doesn't
have a material effect ... on the psyches of the American people
and eventually on their wallet." - Phillip Inman, The
Guardian
21. As calamitous as the
sub-prime blowup seems, it is only the beginning. The credit
bubble spawned abuses throughout the system. Sub-prime lending
just happened to be the most egregious of the lot, and thus the
first to have the cockroaches scurrying out in plain view. The
housing market will collapse. New-home construction will collapse.
Consumer pocketbooks will be pinched. The consumer spending binge
will be over. The U.S. economy will enter a recession."
- Eric Sprott, Sprott Asset Management
22. The U.S. economy, once
the envy of the world, is now viewed across the globe with suspicion.
America has become shackled by an immovable mountain of debt
that endangers its prosperity and threatens to bring the rest
of the world economy crashing down with it. The ongoing sub-prime
mortgage crisis, a result of irresponsible lending policies designed
to generate commissions for unscrupulous brokers, presages far
deeper problems in a U.S. economy that is beginning to resemble
a giant smoke-and-mirrors Ponzi scheme. And this has not been
lost on the rest of the world. - Hamid Varzi, International
Tribune
23. It's a crisis if everybody
calls it a crisis. - Morgan Downey, Lasalle Global
24. It's inappropriate
[for money market funds to invest in credit derivatives]. It
doesn't have a place in money market funds. When I created the
first money market fund, I said you have to have immediate liquidity,
safety and a reasonable rate of return. You also have to have
a situation where you're not giving people headline risk. - David
Evans
25. The crisis in the US
sub-prime mortgage market could bolster the gold price not only
because gold provides a safe investment haven. The crisis is
expected to slow GDP growth, spurring lower real interest rates
and a weaker US dollar that will boost gold investment demand.
Gold's traditional role as a safe haven asset in times of financial
turbulence and instability is enforced in the current market
as the metal recouped the majority of losses which occurred in
a flight to cash in the beginning of August. Supporting this
view is the fact that gold recovered despite a rise in the US
dollar caused by a European Central bank intervention that boosted
liquidity in Europe. - Dr. Peter Richardson, Craton Capital
Final Word
While compiling the quotes
for this article, I could not help but note an irony: The most
severe test of the Federal Reserve in the modern era dates almost
100 years to the day from the Panic of 1907 - the credit crisis
that instigated the Fed's founding. The Panic of 1907 was characterized
by bank runs and a stock market crash as investors fled the financial
system. The current crisis, though it has produced similar results,
is a much more complex and wilder breed of cat. Market commentator
Henry K. Liu, offers a keen insight: "With the daily volume
of transactions in the hundreds of trillions of dollars in notional
value of over-the-counter derivatives, the Fed would have to
inject funds at a much more massive scale to affect the market.
Such massive injection would mean immediate and sharp inflation.
Worse yet, it would cause a collapse of the dollar." Unpredictable
circumstances such as these speak compellingly for gold ownership
which, by the way, proved to be just as effective a safe haven
in the Panic of 1907 as it is likely to be now.
_________________________________
The Ed Stein cartoons are reprinted with permission.
Michael J. Kosares, founder and president
USAGOLD - Centennial
Precious Metals, Denver
_____________________
Michael Kosares has over 30 years experience in the gold business,
and is the author of The ABCs of Gold Investing: How to Protect
and Build Your Wealth with Gold, and numerous magazine and
internet articles and essays. He is frequently interviewed in
the financial press and is well-known for his on-going commentary on the gold market and its economic, political and financial underpinnings. |
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