Category Archives: Credit markets

Germany to Guarantee Bank Deposits; Efforts to Salvage Hypo Bank Continue

In response to the crisis at Hypo Bank, Germany said it will guarantee bank deposits. Note that no action was announced regarding Hypo, whose collapse is expected in the next few days if a rescue is not in place. Hypo is not a depositary institution, but it is sufficiently large (almost as big as Lehman) […]

Soros: "He Foresaw the End of an Era"

John Cassidy, in the New York Review of Books, discusses George Soros’ latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means, emphasizing how the storied investor’s views differ from those of the efficient markets/rational expectations school of economics. It also weaves in a wide-ranging discussion of the […]

The Paulson Plan = MLEC Version 2.0

I can be painfully slow to see things sometime….. Long-standing readers and finance junkies may remember the Treasury’s structured investment vehicle fiasco of last fall. By way of background, banks had created off balance sheet entities called structured investment vehicles (SIVs) which contained subprime (and sometimes other) assets, funded by commercial paper and short-term debt. […]

More on the Charge That JP Morgan Withheld $17 Billion From Lehman, Triggering Collapse

Reader Saboor passed along the day’s updates on the case filed by Lehman creditors last week, alleging that JP Morgan, Lehman’s clearing bank, refused to give Lehman access to $17 billion of excess funds held at the bank, precipitating the firm’s failure. I did not see an link to the case yet in a quick […]

Hypo Bank Rescue Fails, Threatening Lehman Scale Bankruptcy, Future of Euro

Hypo Real Estate, Germany’s second largest real estate lender, teeters on the verge of collapse. The bank has a €400 billion balance sheet, which would make for a failure of a similar scale to Lehman’s (Hypo’s footings are roughly $550 billion, while Lehman’s were $660 billion as of its last balance sheet date). Even though […]

Bailout Bill Passed by House

From the Wall Street Journal: U.S. House of Representatives lawmakers wary of growing signs of the nation’s economic distress voted in favor of a $700 billion Wall Street rescue package on Friday, sending the biggest government intervention in the financial markets since the Great Depression to President George W. Bush for his signature. The vote […]

States, Cities Hit Hard by Credit Crisis, Falling Revenues

Even though the markets are looking for a boost from the expected passage of the bailout bill, which means they have faith in the US government’s ability to pay, that trust does not appear to extend to states and municipalities, who like companies, are having trouble raising money in the credit markets. Some government bodies […]

UK: Homebuilding at 50 Year Low, Banks Clamp Down on Lending

Although the housing contraction started later in England than in the US, the credit and real economy contraction has progressed at a quicker clip. The latest sightings are not pretty. The Independent reports that new home construction has plummeted to a 50 year low: New private house-building is at a 50-year low, according to an […]

The Devil in the (Derivative) Details: AIG, Fortis

We wrote a couple of days ago that one of the reasons for rescuing AIG was that its failure would have had a devastating impact on EU banks. The insurer had entered into credit default swaps that enabled European banks to evade minimum capital requirements. Thus, an AIG failure would have put a considerable number […]

A Better Way to Use That $700 Billion

Even though the deeply flawed bailout bill appears to be moving relentlessly towards passage by the House, it hasn’t deterred pundits and experts from coming up with better alternatives. Since the smart money expects this so-called “Mother of All Bailouts” to be another chapter in a series, it’s worth keeping tabs on these ideas, since […]

Another Reason for Cash Hoarding: Big Credit Default Swaps Market Test Imminent

Most observers have taken as a given that the increased disinclination of banks to lend to each other is counterparty risk, that is, the fear the money they lend out won’t come back, or at least on the initially promised timetable (bankruptcy proceedings take time and usually lead to losses by unsecured creditors). Some wags […]

Crunch Hits Real Economy: Wachovia Funds Limits Access by Colleges

Oh boy, this is badly timed. The run on money market funds appears to have abated, thanks to the insurance plan implemented by Treasury, but the commercial paper market, important for day-to-day business funding is still under big-time stress because the amount of money committed to short-term, non-government holdings has contracted. The new bit of […]

BreakingViews: Bailout Bill to Worsen, Prolong Recession

In the last few days, virtually all mainstream financial media outlets have taken up the banner for the passage of the deeply flawed bailout bill. A bit late in the game, BreakingViews, which is insightful but hardly extreme in any of its positions, argues that the Paulson plan directs capital to where it will not […]

Credit Crunch Worsens: Libor Spikes, Commercial Paper Outstanding Contracts

One of the most troubling aspects of the credit crunch is that even large companies are now seeing its effects. By way of background, the commercial paper is a significant source of short-term funding for big companies and financial firms. Commercial paper is unsecured IOUs (there is another type of commercial paper, “asset backed commercial […]

Edmund Phelps Advocates Anglicized Swedish Approach for Fixing Financial System

Columbia professor and Nobel prize winner Edmund Phelps writes in a Wall Street Journal op-ed, “We Need to Recapitalize the Banks,” an article appears not to have garnered the attention it warrants in the blogosphere. Phelps comments approvingly on Sweden’s approach to handling its financial crisis, which had as its cornerstone reducing the size of […]