As I am sure you all know by now, Bear Stearns started coming spectacularly unglued last night, and called JP Morgan, who in turn tapped the Fed, who sent examiners who stayed at the firm all night. In the morning, a plan was announced by which the central bank would assume the risk of lending […]
Read more...The news that Bear had to run to the Fed for help with its rapidly deteriorating cash position, and JP Morgan has been muscled into assisting in the rescue is a sign that Bear was deemed too big to fail. The Fed is lending against Bear’s collateral (I haven’t seen an estimate as to how […]
Read more...Gillian Tett ponders the conundrum that, given the dearth of logical suspects to replenish US bank equity if credit markets continue to deteriorate, the Federal government will have to step into the breach. But bailouts are profoundly unpopular even in the best of times, and an election year is a particularly ill-fated juncture for this […]
Read more...The market rallied on the news that S&P reported that the end was in sight for subprime writedowns, with the firm placing the total damage at $285 billion, with $150 billion realized so far. The need to believe is stronger than I realized. “End is sight” is not the same as “end is nigh” but […]
Read more...The normally sober and measured Martin Wolf of the Financial Times is getting worn down by reading too many bearish forecasts, particularly those of Nouriel Roubini. And although Wolf would like to dismiss Roubini’s estimates as extreme, his track record in calling this downturn makes him loath to do so. From the Financial Times: What […]
Read more...The Wall Street Journal on Monday said US regulators have been urging banks to raise more capital. John Dizard argues in the Financial Times that banks need to do so posthaste: We don’t, however, have a lot of time to avoid the self-reinforcing contraction of the financial system that is the precursor of a depression. […]
Read more...Oooh, the week has barely started and we’ve already had an overdose of adrenaline-generating news. Thornburg Mortgage and Carlyle Capital, both twisting in the wind, battered by margin calls, look unlikely to escape bankruptcy (Thornburg has already defaulted on financing agreements; Carlyle is seeking a standstill). Freddie and Fannie took a further beating thanks to […]
Read more...Paul Krugman usually has enough important topics to occupy himself, like the sorry state of health care, income inequality, tax policy, Bush Administration offenses du jour, that he rarely gets around to matters financial. But stress in the markets has again come to the fore, so Krugman is taking a serious look. Not surprisingly, he […]
Read more...Even as recently as, say, last December, worrying about the the safety of Fannie Mae and Freddie Mac’s guarantees was seen as a sign of a being overly preoccupied with remote risks (in fairness, Nouriel Roubini did consider this possibility in the summer of 2006 and Michael Panzner did in his book Financial Armageddon, but […]
Read more...One of the upsides of blogging is sometimes other inquiring minds get to the bottom of matters that have been nagging at you. We had warned a couple of months ago that a colleague with serious connections into the Treasury and Fed told us they were working on plans for a quasi-nationalization of the banking […]
Read more...The Fed raises the amount on offer for the TAF from $30 billion to $50 billion, bringing the size of the facility to $100 billion. The stock market took cheer briefly, but as of this writing, the Dow has retreated back into negative territory. From Bloomberg: The Federal Reserve plans to increase its loans to […]
Read more...Gillian Tett in the Financial Times points out a nasty conundrum. For the credit markets to get back to some semblance of normalcy, prices of instruments have to fall their clearing price. Only a very few will buy before a bottom has clearly been reached. But reaching liquidation prices will entice the capital that has […]
Read more...No, this isn’t a confessional by Jerome Kerviel. Instead, it’s a few excerpts of a very good paper by the Senior Supervisors Group (regulators from France, Germany, Switzerland, Britain and the United States) who went poking around 11 major financial institutions to find out how they botched their risk management so badly last year. The […]
Read more...An article in Bloomberg, “Credit Swaps Thwart Fed’s Ease as Debt Costs Surge ,” focuses on a noteworthy phenomenon, but does a lousy job of explaining it. I’m posting it nevertheless in the hopes that a reader in the relevant markets might shed some light. The story tells us that corporate borrowers, even AAA ones […]
Read more...The retreat from the mortgage market continues. Not surprisingly, no one wants to lend to high-risk borrowers that are now having trouble paying. Notice also that Citi plans to sell a high proportion of its new mortgages to Fannie and Freddie. From the Financial Times: Citigroup is to shrink its $200bn-plus mortgage portfolio by a […]
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