Carry trade: Dropping the carry

Low-cost borrowings in Japanese yen have fed the world’s financial markets for years. The cheap funds have been placed in everything from deposits in high-yielding banks in New Zealand to slices of mortgage-backed CDOs in Greenwich, Connecticut. Now this carry trade - a major source of leveraged and speculative excesses - is rapidly unwinding. The likely results: less liquidity and lower asset prices. The size of the yen carry is impossible to quantify, but economist Tim Lee of Stamford-based Pi...