Sunday, March 16, 2008

Credit crisis reveals America's secret financial market

Sun Mar 16, 12:18 AM

WASHINGTON (AFP) - The financial hurricane tearing through Wall Street has sparked vast losses at major banks, but it has also exposed a formerly secretive corner of America's financial markets.

Millions of Americans track the Dow Jones Industrial Average and their stock portfolios on a daily basis, but the trillion-dollar trade in mortgage-backed securities, corporate and municipal bonds and other complex securities is mostly hidden and closed to amateur investors.

Mounting losses on mortgage securities have affected other complex debt instruments and deepened a credit crunch that has reverberated around the world.

Banks in New York, London and Zurich are trying to offload their exposure to such securities, but the opaque nature of a market where trades occur between banks rather than on an open exchange appears to have scared off buyers in the current uncertain climate.

"The subprime problem spread to the banks and from the banks it has now spread to the credit markets and it has become a vicious cycle," said John Praveen, the chief investment strategist for Prudential International Investment Advisers, LLC.

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