Category Archives: Credit markets

MetLife, XL Capital Credit Default Swaps Trading at Distressed Levels

First it was banks and securities firms, and now the focus of worry has widened to include insurance companies. Reader John referred us to a Reuters article that MetLife credit default swaps are now trading on an upfront basis, which means buyers of protection against the default of MetLife bonds must make an upfront payment […]

Money Markets Still Frozen, Dollar Libor Reaches New High

Over the last two weeks, we have said that central bank liquidity measures had become counterproductive. Throwing more liqiudity at banks made it more viable for them to depend on monetary authorities and not rely on private sources for funding, and in turn extend credit to them. One contributing factor not mentioned in many of […]

U.S. May Buy Stakes in Banks

It is bit perverse that the powers that be had to try all sorts of measures before considering the course of action that has been the most successful in handling financial crises, namely, letting asset prices fall and recapitalizing banks. In this case it would apparently involve taking equity stakes, say preferred stock and warrants, […]

Fed Lending Another $38 Billion to AIG

There is a new press release up at the Fed on its latest loan to troubled insurer AIG (hat tip Dealbreaker): The Federal Reserve Board has authorized the Federal Reserve Bank of New York to borrow securities from certain regulated U.S. insurance subsidiaries of the American International Group (AIG), under section 13(3) of the Federal […]

Some Signs of a Thaw in the Credit Freeze

It is way to early to take cheer, but some of the stress in the money markets is backing off a bit. The TED spread is below 4, and ten year credit swap spreads were down to 45 basis points, which is a serious improvement and a genuine positive sign. From Bloomberg:The spread between the […]

Wolfgang Munchau: Policy Errors Risk Turning Credit Crunch Into Depression

Wolfgang Munchau in EuroIntelligence argues against conventional wisdom, which is that modern policy tools and institutional arrangements will keep the credit crisis from morphing into a depression. He contends that the policy errors, the result of political considerations, have been substantial. He also says that Treasury Secretary Henry Paulson devised the badly-flawed Troubled Assets Repurchase […]

Coordinated Central Bank Action Fails to Relieve Money Markets

The coordinated central ban effort today to restore some level of activity to stressed funding markets, in which five central banks cut their policy rates by a half a point and China cut rates by 0.27%, is a resounding failure. From Bloomberg: Overnight corporate borrowing costs jumped, Treasury bill yields fell and the bond market […]

Russian Stock Market Collapse Exacerbates Its Credit Crunch

Russia’s stock market took a beating as foreigners started getting cold feet over the British Petroleum row, when a consortium of oligarchs engaged in a power and money grab over a Moscow-based development joint venture, TNK. But falling oil prices are also a bad harbinger for a resource-dependent economy. From Bloomberg: Russia’s stock market collapse […]

Coordinated Central Bank Rate Cuts Stem Equity Rout

The Federal Reserve, ECB, Bank of England, Sweden’s Risbank, and Bank of Canada all made rate cuts, each of a half a percent; China cut its benchmark rate by 0.27%. The move pared substantial losses in foreign equity markets (the FTSE, which also benefited from a capital injection into stressed banks) is up slightly, and […]

A Plan for China to Bail Out the US

This proposal by Arvind Subramanian in the Financial Times makes quite a lot of sense, but given the collective denial in the US about how bad things are (despite the cratering of the markets, neither Presidential candidate was willing to say the economy would get worse, when that is a given) and our dependence on […]

Money Goes Geopolitical: Iceland Seeking Rescue From Russia

Not only does politics make for strange bedfellows, but so does desperation. Iceland is looking to borrow over $5 billion from Russia to shore up its banks. Um, Iceland is a member of NATO, or at least is now. As reader Jørgen commented, Russia backstopping Iceland? What is the pay-back? Keflavik? I guess this resembles […]

AIG: Hearings Present Evidence That Management Disguised Losses

From coverage of Congressional hearings in the New York Times (hat tip reader Tom): [Former AIG CEO Martin} Sullivan also came under fire for reassuring shareholders about the health of the company last December, just days after its auditor, Pricewaterhouse Cooper, warned of him that AIG was displaying ”material weakness” in its huge exposure to […]

Lessons From Modern Economic Crises (Not for the Fainthearted)

Now that the world is in the throes of the mother of all financial messes, economists are scrambling to develop expertise. Carmine Reinhart and Kenneth Rogoff recently had this beat largely to themselves. but in the last two weeks, the IMF came out with a stud of 124 modern banking crises. The latest addition to […]

A Glimpse Into the Abyss

I must confess a certain fondness for the apocalyptic sort of financial writer, provided they don’t lose anchoring with reality and fall into the tinfoil hat category. Nouriel Roubini is the case example of an economist who favors a baroque, melodramatic style, and despite sounding more than a tad unhinged at points, he has proven […]

NY Times: Fed Considering Buying Commercial Paper

Now we see how the Fed’s toolkit is not well suited to the problem at hand, and its next-best moves are dubious indeed. Acute conditions in the commercial paper market, a vital source of short-term funding for large corporations and banks, threaten to produce a sharp contraction in business activity. Commercial paper defaults have been […]