Comments on: ECB Makes Unprecedented Infusion in Effort to Stem Credit Market Panic http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html Mon, 23 Nov 2009 05:03:06 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: dd http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-339 dd Fri, 10 Aug 2007 12:40:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-339 Forcing a mark to market combined with resetting ARMs that impair households is creating a perfect storm. This resembles the Drexel junk bond collapse that spread to S&L; except it's not a serial collapse but a real implosion. Agreed that we are just at the beginning as there is no mention of the always illiquid OTC derivatives and one can only imagine the fat tail contracts written for all those lovely fees that boosted bonuses with nary a dime toward reserves for events deemed too improbable to occur. Forcing a mark to market combined with resetting ARMs that impair households is creating a perfect storm. This resembles the Drexel junk bond collapse that spread to S&L; except it’s not a serial collapse but a real implosion. Agreed that we are just at the beginning as there is no mention of the always illiquid OTC derivatives and one can only imagine the fat tail contracts written for all those lovely fees that boosted bonuses with nary a dime toward reserves for events deemed too improbable to occur.

]]> By: dis http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-338 dis Fri, 10 Aug 2007 08:52:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-338 Here is a nice summary of some of what has been going on<br/><br/>http://online.wsj.com/article/SB118664884606092848.html?mod=hpp_us_whats_news<br/><br/>BoJ also injected about $ 8 billion Here is a nice summary of some of what has been going on

http://online.wsj.com/article/SB118664884606092848.html?mod=hpp_us_whats_news

BoJ also injected about $ 8 billion

]]> By: Yves Smith http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-337 Yves Smith Fri, 10 Aug 2007 01:54:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-337 dave l,<br/><br/>I wish I were smart enough to know the answer. Few would have expected that money market funds in Europe would be affected, Similarly, the FT pointed out on Monday that if one of the large credit insurers were to default, municipal bonds would be hit.<br/><br/>Apparently the trouble today was caused at least in part by a big hedge fund liquidating positions (Goldman's Global Alpha is the suspect) putting other funds into havoc. <br/><br/>But I still think the real mechanism by which these financial market gyrations get into the real economy is the housing market. Banks and other creditors will be even more spooked after today's events. Falling housing prices lead to negative wealth effect which leads to lower consumer confidence and spending. And per burnside, the fact that ARMs will go up doesn't help.<br/><br/>However, liquidity did dry up today. That is really surprising at this juncture (the credit contraction has really just gotten underway). The wild card is whether one or several investment banks eventually take enough credit-market-induced losses so as to impair their capital bases. The Bank of England sees that as having the potential to create systemic risk. dave l,

I wish I were smart enough to know the answer. Few would have expected that money market funds in Europe would be affected, Similarly, the FT pointed out on Monday that if one of the large credit insurers were to default, municipal bonds would be hit.

Apparently the trouble today was caused at least in part by a big hedge fund liquidating positions (Goldman’s Global Alpha is the suspect) putting other funds into havoc.

But I still think the real mechanism by which these financial market gyrations get into the real economy is the housing market. Banks and other creditors will be even more spooked after today’s events. Falling housing prices lead to negative wealth effect which leads to lower consumer confidence and spending. And per burnside, the fact that ARMs will go up doesn’t help.

However, liquidity did dry up today. That is really surprising at this juncture (the credit contraction has really just gotten underway). The wild card is whether one or several investment banks eventually take enough credit-market-induced losses so as to impair their capital bases. The Bank of England sees that as having the potential to create systemic risk.

]]> By: burnside http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-335 burnside Fri, 10 Aug 2007 00:42:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-335 I note LIBOR is up. ARM resets are/will be affected.<br/><br/>This will be my first experience of so many negative reinforcement loops simultaneously active. I note LIBOR is up. ARM resets are/will be affected.

This will be my first experience of so many negative reinforcement loops simultaneously active.

]]> By: Dave L http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-334 Dave L Thu, 09 Aug 2007 22:35:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-334 So, what are the likeliest risks ahead? It seems to me that there must be a real threat to hedge (and other) funds of large-scale redemptions. So, what are the likeliest risks ahead? It seems to me that there must be a real threat to hedge (and other) funds of large-scale redemptions.

]]> By: Yves Smith http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-332 Yves Smith Thu, 09 Aug 2007 21:58:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-332 dis,<br/><br/>Thanks for filling in the level of take-up by banks. This is ugly indeed. Panic has set in, and the financial bad news is far from over. dis,

Thanks for filling in the level of take-up by banks. This is ugly indeed. Panic has set in, and the financial bad news is far from over.

]]> By: dis http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in.html#comment-331 dis Thu, 09 Aug 2007 21:52:00 +0000 http://www.nakedcapitalism.com/2007/08/ecb-makes-unprecedented-infusion-in-effort-to-stem-credit-market-panic/#comment-331 Yves this was a humongous injection of liquidity. It is not reassurring. This is from Brad deLong's blog<br/><br/>"<br/><br/>So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.<br/><br/>This is indeed a significant liquidity event..."<br/><br/><br/>http://delong.typepad.com/sdj/2007/08/central-banking.html Yves this was a humongous injection of liquidity. It is not reassurring. This is from Brad deLong’s blog

“

So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday–an annualized growth rate of 2100% per year.

This is indeed a significant liquidity event…”

http://delong.typepad.com/sdj/2007/08/central-banking.html

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