This is coming from the Chairman’s own mouth:

05/18-times.uk: Ben Bernanke, the Chairman of the US Federal Reserve, has become the most prominent critic of the banking industry’s appetite for financing highly leveraged private equity deals. Mr Bernanke gave warning yesterday that piling so much debt into some deals posed “significant risks”, particularly if the US or other big economies ran into trouble if hefty loan repayments became difficult to meet… Mr Bernanke joins a chorus of concern that private equity firms are overpaying for businesses because they are sitting on an unprecedented mountain of investment capital. The increasing competition among buyout firms for deals is pushing up the prices of the companies they buy, and the banks are happily making bigger and bigger high-margin loans to help to finance the deals…

Wow, this is the confession we have been waiting for so long. It gives our “Titanic argument” serious legs. Especially when added to this, more fraud at every floor of this “multi-level” marketing is being discovered:

05/18-/realtytimes.com: Mortgage fraud rose 30 percent last year; it is spreading nationwide, and it’s getting the blame for the housing bust… Once concentrated in relatively few state, “incidents of mortgage fraud are now more evenly distributed across nearly all states,” according to the institute’s “Ninth Periodic Mortgage Fraud Case Report To the Mortgage Bankers Association.” … The Agency has reported collusion, conspiracy and racketeering among industry insiders as contributing to the rise in mortgage fraud in recent years… A growing number of experts believe foreclosures, both fraud-related and others, stem from a boom that was spurred by the easy mortgage money… Federal Reserve Chairman Ben Bernanke, speaking at a financial conference in Chicago this week, said the downturn would, however, stop at the housing market and not spread to the rest of the economy as the Fed cracks down on abuses.

Of course easy money goes along with double speaks in so many articles. Start paying attention from now on, and you will notice it by yourself. Double speak is what sustain optimism. However if “the risk” has not spread, why is Bernanke going to tell the times.uk the complete opposite?

Unfortunately it surely looks as if the risk has spread to the rest of the world. In the economist, one could read today the following:

05/18: Global investment banks (aka: The alchemists of finance) are taking ever more risk, and are devising ever more sophisticated ways of spreading it, says Henry Tricks. Is that reassuring or worrying? … The first is the alchemist’s trick of turning debt (mostly leaden) into derivatives (mostly liquid); the second is the emergence of a new class of leveraged client (hedge funds and private equity); and the third is seeking out new capital markets, and clients, around the world. Moreover, in all these pursuits the firms are now using not just their clients’ money but, to differing degrees, their own too…. They are arranging ever bigger debt issues for private-equity firms and hedge funds and so are encouraging a borrowing binge that could breed financial instability. For the time being all this is hugely profitable. But it is also making the banks far too complacent for their own good…

If you don’t understand the term “derivatives”, it a fancy definition implying that  A agrees to pay a series of premium to B; who agrees to compensate A if bonds default. Leaving beyond one’s means is unethical. For example our Western debt craze has unleashed an unprecendent madness in Asia. Now more and more mainstream economists acknowledge the challenge of a soft landing: China’s “mad” stock market spiralling out of control.

05/17: …. By May 10, the number of registered stock investors in China had passed 95 million. College students, housewives, taxi drivers and even Buddhist monks, not to mention businessmen and professionals, are all involved. The stock market is seen as the magic means for getting rich overnight. People are reportedly selling their homes, withdrawing pensions or loading up their credit cards with massive debts in order to gamble on shares….

Gamble is alas the right word, here goes another article which confirms that the China market crisis is looming large:

The Shanghai Composite Index has jumped 50.3% this year, taking its rise since the beginning of last year to 249%. In Shenzhen, the market has leapt 104% this year and an almost absurd 303% in the past 16 months. Fevered demand has collided with restricted free floats and large holdings by the government to restrict supply.

Now watch out for the (infamous) iceberg…