Category Archives: Credit markets

Asian Bonds Hit by Credit Panic

The ratchet down of the credit market Monday due to worries about Bear Stearns’ solvency and Fannie Mae have produced widespread collateral damage (no pun intended). Bloomberg reports that credit default swap prices, which rose sharply for US and European issuers, reflecting heightened worries about credit risks, have also increased for a large range of […]

No Exit: Will "A Short Financial Crisis Become a Long One"?

By happenstance, three articles in the Financial Times provide useful, if disheartening, triangulation on the credit crisis. In sum, the markets are a mess, policymakers don’t agree on what to do, and there may be nothing they can do except make matters worse. Last week was by any standards a bad week, with the Fed’s […]

Ambac Updates: Spitzer Twisted Arms; More on Tape Painting

The Financial Times reports today that New York governor Eliot Spitzer, hardly a well-liked figure on Wall Street, did serious arm-twisting to get banks to support Ambac’s fundraising: Eliot Spitzer, governor of New York, played a critical behind-the-scenes role in the rescue of Ambac, frequently calling senior bankers to press for a deal to be […]

On Krugman’s Worries and the Breakdown of the Securitization Model

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 […]

Why Investors Are Down on Fannie Mae

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 […]

Covert Nationalization of the Banking System

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 […]

"Sense of crisis haunts trading floors"

An article in today’s Financial Times is useful, albeit sobering, for attempting to give more of a calibration of the negative sentiment sweeping credit markets. Pretty it isn’t. Note also that the FT isn’t big on stories with emotional content. From the Financial Times: A palpable sense of crisis pervades global trading floors. Not since […]

MBIA Tells Nasty Fitch to Go Away; Ambac’s Friends Manipulate Market

Further confirmation of the lack of integrity in the markets comes via the desperate and pathetic measures of the monoline insurers. First, a Bloomberg story tells us that MBIA has asked Fitch to quit rating some of its insurance units because it thinks its grading scale is too harsh. Gee, the whole point of a […]

Fed Fund Rate Predictions

Courtesy the Cleveland Fed. Note that this is as of time, the Fed fund futures market says there is zero probability of a 25 basis point reduction. A 50 basis point cut has 50% odds. Note this chart is dated March 6. and therefore does not reflect the impact of the announcement of the increase […]

Fed Increases the Term Auction Facility

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 […]

Fisher: Don’t Expect the Fed to Bail You Out

Let’s see if the credit markets take this warning seriously. From Bloomberg: Federal Reserve Bank of Dallas President Richard W. Fisher said investors shouldn’t assume the Fed will keep up the recent pace of interest-rate cuts. “We reacted with very deliberate actions” in January, said Fisher in an interview with Bloomberg Television in Paris. “That […]

"Vicious spiral haunts debt markets"

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 […]

Credit Swaps Feedback Loops Raising Corporate Borrowing Costs

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 […]

Credit Markets "Utterly Unhinged"

The credit markets are casting a big vote of no confidence in the idea that the Federal government can rescue the housing market. As we noted before, spreads on agency securities have widened to extreme levels. This renders the Fed’s rate cuts largely ineffective, at least if the intent was to give relief to the […]