Lawyers are now warning that the credit meltdown could leave banks, hedge funds and private equity firms embroiled in costly litigation. Whenever there is a downturn there is increased litigation. But this time, it could get ugly because we don’t know how bad the problem really is.
The subprime woes which have spread to global markets are set to continue this week are set to continue with all eyes on the Federal Reserve this week. The big question is whether the meltdown reflects deeper problems with the US economy that go beyond subprime.
The fallout from the US mortgage mess continues to hurt the US market and beyond. Clearly, issues once specific to the US are now flowing through to other markets as banks force borrowers to sell assets and investors scramble away from risk. And it will get worse.
The market seems to be bracing itself for the next shoe to drop with the two Bear Stearns hedge funds which had bet big on subprime mortgage sector now virtually worthless. As fed chief Ben Bernanke has indicated, things are going to get worse before they get better.
The private equity party seems to be coming to an end, leaving the buyout firms to take the money and run. The fallout from the subprime mortgage defaults are making the banks nervous and investors are turning to safer bets.
The mid-term elections turned Barney Frank into the most important and powerful legislators in the US. Here is a video interview canvassing his views on the future of Sarbanes-Oxley, and other key issues including litigation and the subprime lending meltdown.
Leon Gettler is a blogger and senior business journalist at The Age, specializing on management issues. His latest book, Organisations Behaving Badly focuses on the forces that lead smart executives into making dumb decisions.
