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Investment Guru Mark Faber speaks with UTVi Channel from Hong Kong on Lehman Bankruptcy

Investment guru Marc Faber said financial institutions have problems, simply because of leverage on very small capital base.

"Lehman, as example, has equity of $20 billion and assets of $600 billion. So, if the assets move by 3% on the downside, the firm is basically out of business and has no equity left. That is the problem financial institutions will face in America... essentially, the problem is that the leverage was actually encouraged by the Federal Reserve."

Speaking on the financial crisis, Faber said: "I think the financial crisis is now maturing... some other institutions will fail, but I think what analysts and strategists are overlooking is the dismal fixture of corporate profits because clearly as financial institutions fail or are about to fail, they have to sell assets... as they sell assets, the prices of these assets go down, and then you have a situation where asset value declines. The debt level remains the same, and so you have negative equity and you have a vicious down cycle."

Speaking on the US recession, Faber said: "Economically speaking, the world is probably already in recession. Everywhere I travel to, business is not as good as the year before, and corporate profits will disappoint very badly, especially next year because the expectations for a recovery are very high." 


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