The Sub Prime Crisis: Some investors see an opportunity

(Ref: The Financial times dt August 21)

Wilbur Ross, the US financier specializes in distressed businesses. In 2000 he bought a bankrupt lender, Kofuku Bank of Osaka and sold it three years later for a profit. Planning to invest in the sub prime segment in a big way, Ross recently remarked, “We are going to be in sub prime. It is a valid business. There is nothing wrong with lending sub prime, what is wrong is doing it recklessly.” Having lent $50 million to American Home Mortgage, a move which he equates to getting his feet wet, Ross has much bigger plans ahead.

Ross’s move is reflection of the maturity and dynamism of the US financial markets. True there is currently a crisis. But even in a crisis, people are seeing opportunities. There is a lot of soul searching going on out there. No one is trying to downplay the magnitude of the crisis. The only debate is on what is the best policy measure under the circumstances. And what are the structural measures needed in the long run? If such a crisis had happened in India, the country’s leaders would have almost certainly gone into a state of denial, arguing that the crisis had been exaggerated. In contrast, the crisis is being discussed in a very transparent way in the US. Even Henry Paulson the highly respected Treasury Secretary and former Goldman Sachs CEO has admitted that the US economy will take a hit. The strength of the global economy, less dependence on the US, pragmatic measures by the Fed and the arrival of bargain hunters like Ross mean that there is still a silver lining in the cloud. The markets may stablise faster than expected.