Thursday, October 9, 2008

Waste Treatment and Toxic Assets

Le Monde has an interesting short note on a banal waste treatment consortium in Yvelines. Like many such public works projects, it floated two bond issues to finance its operations. Then, in order to meet its operating expenses in a changed financial regime, it enlisted the services of a financial consulting firm, which advised it to take a position in international currency swaps, a complicated financial instrument that the facility's board no doubt did not fully understand. But they had paid for what they thought was competent advice. For a while all went as planned, but then came the crisis, and now this waste treatment facility has on its hands what the financial world has come to call a "toxic asset," which it does not know how to incinerate.

One small example among millions, no doubt, but it has the illustrative value of showing that the problem cannot simply be reduced to "subprime mortgages" or "the US housing bubble." Things are crazier than that. Just how crazy we're only beginning to discover. Read today's excellent NY Times article on derivatives and the determined opposition to regulating them, led by Alan Greenspan, yesterday's unassailable gnome. Another excellent article on the crisis is this one by Martin Wolf.

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