
The Credit Crisis is Just Another Way of Describing a Loss of Trust 1. The BDI measures the Baltic Exchange; a market index that calculates the price of a ship lease... for the buying and selling of time charters of ships. If I need a ship, I lease one from a ship broker and the ship broker reports the terms of my lease ie: price, size of ship, lease period etc... to the Baltic Exchange and they record the price. Wall Street speculators entered the market and started buying up time charters. There were no speculative sellers, only buyers. Thus, this inequality between buyers and sellers in an especially illiquid, hitherto "commercial player only" distorted prices. When the speculative bull decided to cash out of the market, the market collapsed. In COMEX, you have commercial and speculative buyers and sellers and a highly liquid market. The Baltic Exchange wasn't historically a speculative market. When speculators finally exited, the BDI crashed. 2. Letters of Credit Explained. There are many types. Only one matters to the current crisis: Intenational. Letters of Credit are financial instruments which guarantee payment before delivery. Example: I'm not shipping copper w/out a letter. I might not get paid on delivery. Your court system may not honor my just argument when I go to sue. Thus, I need a guarantee before delivery. Banks used to trust each other, now they don't... Why not? Off balance sheet accounting. Commercial buyers and sellers are no different. The letter of <b>...</b>
Credit Crisis
Trust
Good Faith
Letters of Credit
Global Depression.
The
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