The private equity sector is starting to creak
Private equity deals have very little to do with equity and a hell of a lot to do with debt. This is the industry’s dirty little secret.
Do banking crises come before and lead to recessions or do recessions come before and lead to banking crises?
This was the question I posed yesterday, before pointing out that one of the lessons of the Global Financial Crisis was that when ample credit is available, defaults drop to negligible levels. When defaults are negligible, there will be no shortage of credit.
One of the most egregious cases of a misjudgement of the credit cycle was that made by Chuck Prince, erstwhile Chairman and CEO of Citigroup. Now, we shall look at that misjudgement.
On 10 July, 2007, the Financial Times reported on a meeting it had held in Tokyo with City CEO Chuck Prince who had said that the party would end at some point but that there was so much liquidity in the market that it would not be disrupted by the emerging turmoil in the US subprime mortgages.
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