Although at the moment the financial markets seem okay, there is still an undertone of pessimism. When thinking of the current mess in the markets, one of my favorite quotes that comes to mind is from the movie Boiler Room…
“And best of all kids, I am liquid.” – Jim Young (Ben Affleck)
Unfortunately, that’s not the case for many people. Many hedge funds have collapsed due to margins calls from being over-leveraged and unable to trade their suddenly illiquid investments such as MBS (mortgage backed securities).
Now there is word that many people participating in auction-rate securities are getting hammered. These investments were sold as “cash equivalents” meaning no chance of losing your principal. Of course, now they are losing money due to the lack of participants in these auctions and hence making these investments you guessed it – illiquid.
Trivia: Boiler Room was released Feb 2000 a month before the Nasdaq hit its highest closing ever at 5,048.62 on March 10, 2000. In retrospect the movie was more of a documentary on what was happening during the dot.com bubble.