The Worst of the Credit Crisis May Not Be Over - Scholes

Scholes, Nobel Laureate, Says Credit Crisis May Not Be Over
By Vivien Lou Chen and Thomas R. Keene

May 16 (Bloomberg) -- Myron Scholes, chairman of Platinum Grove Asset Management LP and 1997 winner of the Nobel Prize in economics, said the worst of the crisis in credit markets may not be over.

``From my perspective, I think that we don't know if the storm has passed or if we are still in the eye of the storm,'' Scholes said in an interview with Bloomberg Radio yesterday. ``Are there other shoes to drop and new events or new shocks that will come to the fore?''

Scholes's warning reflects financial markets that Federal Reserve Chairman Ben S. Bernanke this week said remain ``far from normal.'' Financial institutions have been reluctant to lend to each other, driving up bank borrowing costs, since a flight from risk in August sparked by defaults on subprime mortgages.

``In my view, this is probably as bad or worse than the 1989-1990 crisis and may even rival the worst crisis we've seen since the end of the Second World War,'' Scholes said. Former Fed Chairman Alan Greenspan has also said the turmoil is the most ``wrenching'' since the war.

Scholes, 66, and Robert Merton won the Nobel Prize for economics in 1997 for their work in valuing options. His firm, Platinum Grove, is based in Rye Brook, New York.

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Thomas Keene in New York at tkeene@bloomberg.net