World markets look to rebound

The international markets have moved to agressively shore up positions of the worlds largest banks in response to the large financial sell off created by poor regulatory management. Reviewing the events of the past year, the starting point of the down turn has always been linked to the U.S. housing market collapse, blamed directly on subprime mortgage lending.

The collapse of the housing market was really the tip of the iceberg. The worlds largest banks, insurance companies and financial companies exploited poor oversight to rig their ballance sheets over the past five years. These companies participate in secondary derrivative markets, where they have been leveraging assets at ratios of 50 to 1. As the value of their balance sheets has deteriorated, the companies are required to post additional collateral to help ensure they are keeping the correct capital ratios. The challenge of raising capital has become much more difficult as they have continued to see the value of their assets dwindle, leaving those with capital in a position of not willing to rescue the ailing companies. This issue has become further complicated by the interbank lending that has essentially stopped. The secondary capital credit market has stopped lending as no entity has trust in their counterparties.

The end result is stock portfolios are off by over 40% during the past 12 months, home values continue to decline and the rheotoric continues to increase. The world leaders of the largest countries have finally united with a plan to help raise capital for these financial companies and help to try and restore confidence within the market. The stock market is looking at a recovery rally and mortgage rates have moved back above six percent.