Bad Debt and the Power of Rumour
Significant changes on major global stock markets are guaranteed to have flow on effects to almost all markets. One such move that appears to be playing out on the US markets is the collapse of the 'sub-prime' mortgage market, which is effectively the issuing of debt to borrowers who are regarded as less than ideal borrowers (hence the sub-prime).
Bad loans shouldn't necessarily cause market slides such as have been seen, but the markets are taking a huge hit because many of the blue chip stocks that the indices are partially based on have significant investments tied up in this particular debt sector, especially the major financial institutions and trading firms. In Australia, for example, many of the major losers on the stock exchange have been international firms with exposure to the US housing and lending market. This, in turn, has dragged down the value of the Australian market over repeated sessions and is beginning to be a major concern for Australian investors and market watchers (to the point that it is speculated that the events are enough to hold off a Central Bank interest rate rise).
When rumours are added to the situation, critical situations can emerge rapidly, even if the rumours are completely uncorroborated. Rumours circulating on Wall Street late last week forced Bear Stearns (one of the most exposed financial institutions with the sub-prime market) to host a conference call with analysts in order to quash the rumours that it might not have sufficient liquidity to survive for much longer. If left unchecked the rumour could have feasibly led to a run on the bank and a potential collapse.
While Information Security rumours and speculation rarely have such an impact on economies, hoaxes and poorly managed / deflected rumours can lead to intermittent problems for end users who are struggling to even understand the Information Security problems that are relevant to them. Information Security vendors, administrators and IT staff need to be aware of the problem that rumours and speculation can cause amongst their end users and do their best to educate and manage (and not spread the rumours, themselves).
For investors burned by the failing sub-prime market, S?nnet Beskerming is always more than happy to take on additional investors who are looking for a stable environment to invest in.
7 August 2007
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