Willem Buiter is never one to mince words, and today his message is that the financial system is not operating: In a decentralised market economy, financial intermediation between economic agents with financial surpluses and those with financial deficits (or, more accurately, between economic agents who would like to run financial surpluses and those who would […]
Read more...The situation described in this Financial Times story is not earth shaking in dollar terms, but illustrates that corporate bankruptcies leave a trail of destruction in their wake. A number of funds were caught when Lehman failed, and the UK bankruptcy process may take a decade to resolve, leaving assets frozen in the meantime: Several […]
Read more...Let’s see, Bloomberg said yesterday that the Federal government had committed $7.4 trillion to lending facilities and guarantees. The total is now $8.2 trillion thanks to new programs announced today to aid borrowing by consumers, small businesses, and homeowners. Stocks have rallied, and the 30 year bond is also up three points, due to a […]
Read more...We have been less than enthusiastic about the choice of Timothy Geithner to be the next Treasury Secretary. Granted, the idea that we will have someone who is intelligent, knows a thing or two about the markets, and is not from Goldman Sachs makes him a big improvement over the Bush incumbents. However, competence should […]
Read more...Remember how, post 9/11, President Bush urged patriotic Americans to go to the mall? It appears the officialdom is fond of time-tested remedies. Bloomberg tells us that the Fed and Treasury have a plan,, using TARP funds, to get consumers to spend again by supporting consumer lending. There are a few problems with this approach: […]
Read more...One topic we’ve mentioned from time to time is the near disappearance of the debtor in possession financing market and why that is a more serious matter than its dry name might suggest. When large companies seek to use Chapter 11, typically they are broke (duh) as in out of cash. Chapter 11 takes time, […]
Read more...As correspondents and readers have pointed out, Fed chairman Ben Bernanke and the rest of DC is increasingly resorting to the playbook he suggested in various papers on Japan’s deflation. The Federal government has said that it is willing to lend or backstop up to $7.4 trillion to get the credit markets moving again. This […]
Read more...A nice article in the Financial Times by Wolfgang Munchau, “Double jeopardy for financial policymakers,” discusses the Federal Reserve’s move to quantitative easing. There has been some mention of this in the media, as a Bloomberg story from last week indicates, but it hasn’t gotten the attention it deserves. The use of quantitative easing is […]
Read more...Ah, the US keeps inching its way into the behaviors of post-bubble Japan. The latest pending regulatory move it to reduce failures to deliver securities in the Treasury repo market, a vital source of short-term financing for banks and broker dealers. But the remedy under consideration would lead to negative rates on some repos. a […]
Read more...The New York Times has a solid bit of reporting tonight by Eric Dash and Julie Creshwell, “Citigroup Pays for a Rush to Risk,” that seeks to explain why the giant bank got itself in so much trouble. The piece points to the usual culprit, too much risk taking, but the particular Citi flavor was […]
Read more...After opening down (the Nikkei was down over 2.5%, the Hang Seng over 4%, Singapore over 1%), the specter of the US stock market blasting through two support levels in two days was treated, for now, as a thing of the past. In particular, the markets seemed to take cheer from the idea that Citigroup […]
Read more...Citibgroup’s stock price fell another 26% today to $4.71, bringing the week’s decline to 50%. The Wall Street Journal reports that the sudden decay is driving management to consider a radical restructuring of the company or an outright sale, moves that were deemed by management to be off the table as of a mere week […]
Read more...As the prospects for the economy deteriorate, the cost of default protection on corporate bonds hit a new high. From Bloomberg: The cost of protecting corporate bonds from default surged to records around the world as the prospect of U.S. automakers filing for bankruptcy protection fueled concern of more bank losses and a deeper recession. […]
Read more...Bloomberg tells us that JP Morgan has issued a report that contends that the Federal Reserve will cut its policy rate to zero by early next year. While this may prove to be correct, it certainly isn’t an obvious move. First, most central banks regard getting below 1% short term rates is dangerous territory. ZIRP […]
Read more...We’ve noted from time to time that one of the many reasons this downturn will prove to be exceptionally bad is not just that corporate defaults are likely to equal, if not exceed, past post-war peaks. Two new factors are at work that will hurt junk bond holders. First, many of the recent leveraged buyout […]
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