naked capitalism

Anonymous says:

I think it is important to note that a recessionary period does not necessarily imply a fall in equities.

Anonymous says:

One-Week Dollar Libor Falls for Third Day on Bank-Rescue Plan By Gavin Finch

Oct. 14 (Bloomberg) — The cost of borrowing in dollars for one week fell the most in almost a month…

Libor, fell 50 basis points to 4.08 percent today. High was 4.76 percent on Oct. 9. The overnight dollar rate fell 29 bp to 2.18 percent, down from 3.94 percent a week ago. The three-month rate slid 12 bp to 4.64 percent.

The Libor-OIS spread fell 15 basis points to 339 basis points.

Anonymous says:

3 Month Sterling libor 6.24 compared to 6.26 yesterday

3 month dollar libor 4.63 compared to 4.75 yesterday

3 month euro libor 5.22 compared to 5.29 yesterday

These don’t look like impressive movements to me especially since considering all the bailouts , guarantees and unlimited dollar funding for europe. I am still not convinced interbank lending is constrained by fear and suspect a constricted funding source may be responsible.

The flight to treasuries could be draining the banks money sources. Short term US treasuries show yield changes in direct contrast to those for other countries. 6 month US treasuries would appear to have rising yields and prices. Credit markets though are likely to be the final judges.

Anonymous says:

From Bloomberg:
“No Dilution
The government will obtain its stakes with a type of security designed not to dilute the value of common shares.”

Why NOT dilution? There should be dilution. There was gross negligence, massive hubris, and possibly malfeasance to the tune of hundreds of billions, probably trillions of dollars that is so bad it has nearly caused systemic collapse worldwide, and yet the shareholders are being protected from dilution? What? Why?
What ever happened to the concept of individual personal responsibility? From the corporate officers to the directors to the corporate risk control, to internal and external auditors, to outside analysts and finally to common shareholders everyone failed to exercise prudence and oversight and all should be faced with the inevitable result that when you leverage 20 and 30 and more to one, and then lose multi-billions of dollars, your share price is and should be at risk also.

Anonymous says:

Isn’t the high LIBOR rate simply the crowding-out effect of being able to borrow so inexpensively at the various central bank windows?

If central banks began to slowly reduce the supply or preferably raise the cost of these facilities, it would put pressure banks to lend to one another, where there is no pressure at all at the moment, yes?

fred55 says:

Yves:

Fred here. Whether or not this is dilutive per GAAP is not the issue. It is not only ACCRETIVE per reality, it’s a free gift of over $100B that could quite readily at least in non-GAAP (OCBOA) be put on the balance sheet as paid-in surplus.

Explanation:

PLEASE do the math. If the warrants are truly worth what they are represented to be (15% of principal) then the amount invested as preferred is 90% of nominal.

If $25B of preferred goes into B then really $21.25B is allocable to the preferred.

That means the 5% accreting to 9% should be measured relative to the 85% notional principal allocated.

For the first years when its below 9%, we can ROUGHLY assume the deficit interest below 9% compensates for the net present value of the warrant (close enough).

So for arithmetic purposes, this is a perpetuity at 9%.

It is worth more or less than its face value depending whether the applicable discount rate for very long term investments of equivalent risk profile is less or more than 9%.

Right now, arguably, said discount rate is about 15%? Anybody? I assume we’d have to use something around B or CCC.

Thus we wuz robbed. We’re putting in $X and getting back paper worth maybe 1/2 $X.

BUT, if you believe that TOO BIG TO FAIL was always and will always be baked in the cake, you might use a different discount rate.

For me, given what Buffett got and given the realities, this is a free contribution amounting to almost 1/2 of 85% of $250B.

Incidentally, we were taught this math in 6th grade public schools when schools were schools:

Value of a perpetuity:

Present Value = Annual Pmt / Discount

Therefore, 9% perpetual paper is worth aobut 9/15 of its present value, said present value being whatever the warrants arent worth (I believe 85%?).

So we just gave away 6/15 or more of 85% of $250B.

As in GAVE IT AWAY.

VERY SERIOUSLY, I am a quantitative tax lawyer I specialize in this stuff including valuations of private placement securities and I guarantee you this is how the govt would value these investments at least for federal income tax purposes: if its preferred and not debt and its a near-bk business then you better believe you’d be required to presume a 15% comparable return.

Anonymous says:

In the news: “From the credit desk, we see the guarantee programs as a transformative event that has financials as the new sovereigns, and the sovereigns as the new monolines,” said Brett Williams, credit analyst with BNP Paribas.

“Our argument is simply that as credit risks are transferred from the banks to the sovereigns, so too should the spread risk premia,” Williams added.

Analysts said corporates would be ignored in the initial stage of the rally and these credits would attract buying only if the recovery was a sustained one.

“I don’t think we are out of the woods yet. At this point I would sink my teeth into sovereigns and banks which would be supported by the government. I would not look at corporates,” said a Singapore-based credit analyst.”

doc holiday says:

This soap opera has ended with zero regulation changes and nothing to stop unregulated rating agencies from giving AAA ratings to newly packaged unregulated CDOs, CDSs, SIVs and whatever FASB vehicle entity that needs to be backed or linked to unregulated synthetic Playstation betting. The concept of allowing these attention deficit zombies to continue running wild — is what I get out of this story — not to mention that in this new game upgrade, taxpayers pay for everything, and the sky is the limit!

Anonymous says:

http://washingtonindependent.com/12260/the-feds-ballooning-credit-extensions
If you have not read this please do so.

Warnings signs:
No major move after major liquity.
The up in the market may be a short term thing cause the bond markets where not trading yesterday.
Look at what Japan did on captial injection, nothing, What do they know after 10+ years of problems that we dont.
More cash solves nothing.
Making easier to borrow from the goverment cause others not to lend and hoard cash.

Flow5 says:

By both promulgating excessive money and credit creation and avoiding statutory reserve requirements, E-D banks (foreign dollar market) are able to preserve their competitive advantages with lower interest rate loans.

The volume of prudential reserves held by each E-D bank presumably is dictated by “prudence” – not by any legal requirement administered by a monetary authority.

All prudential reserve banking systems have heretofore “come a cropper”. Money creation by private profit institutions is not self-regulatory- the “unseen hand” simply does not function in this area.

Invariably the systems created too much money, speculation became rampant, inflation distorted and destroyed economic relationships, confidence that the banks could meet their convertibility obligations eroded, “runs” on the banks caused mass banking failures, and entire economies were left in ruin.

To borrow here or abroad? The lending capacity of the member commercial banks in the U.S. is predicated on monetary policy, not the E-D market.

The Federal Reserve offsets or “sterilizes” any undesired change in U.S. bank reserves stemming from changes inconsistent with domestic policy objectives.