The bond insurers increasingly remind me of creatures that are a fixture of horror movies, the sort that occupy a special niche between alive and dead. Inevitably, they pose a danger to humans and prove vexingly difficult to kill. Today, the equity markets, which were in a nasty funk, chippered up and regained most of […]
Read more...John Dizard in “Disquiet on the western front of the credit world,” discusses the politics of the credit crisis, depicting two opposed absolutist camps: those who’d have everyone take their lumps now, no matter how bad they turn out to be, versus those who think preventing a nasty recession is all-important, even if it means […]
Read more...Willem Buiter reads two reports issued on the Northern Rock meltdown, and in his Olympian style, finds them wanting. While Northern Rock was a British crisis, its character was similar to those faced by a host of US and European institutions. The Rock held long-dated assets that it funded in short-term markets, a routine banking […]
Read more...According to the Financial Times, number two bond insurer Ambac has decided not to split its operations into a muni insurance business and a structured finance business. Note that we said on February 19 that we didn’t see how Ambac could possibly raise the $3 billion it sought ($2.5 billion in equity and $500 million […]
Read more...The deleveraging continues. MarketWatch reports that investment banks are reducing loans to customers, in particular their heretofore lucrative prime brokerage business, which is lending against hedge fund positions. Now Wall Street itself is less able than before to extend credit. With their equity bases under stress and exposed to further hits, securities firms are reducing […]
Read more...MBIA is revealing itself to be even more of a garbage barge than many cynics thought. On February 25, in a statement which went largely unnoticed, new MBIA CEO Jay Brown had “questions” about the 2007 preliminary financial results announced by the previous regime, and hadn’t signed off on the financial statements. That’s a big […]
Read more...In “States and Cities Start Rebelling on Bond Ratings,” the New York Times attempts to make the case that municipalities can lead a revolt against Wall Street: Does Wall Street underrate Main Street? A growing number of states and cities say yes. If they are right, billions of taxpayers’ dollars — money that could be […]
Read more...Why does the media treat entirely predictable events as news? Fitch has been saying since last April that commercial real estate was exhibiting the same sort of frothiness as subprime. CMBS spreads started widening sharply last August. Investors started pulling back from purchases in September, expecting prices to fall considerably. In November, Nouriel Roubini added […]
Read more...Jim Hamilton, in his latest post at Econbrowser, uses as a point of departure the oft-invoked image that Bernanke is walking a tightrope between inflation and recession. Because Hamilton is a Serious Economist, he has to be measured and fact based, which sometimes means he can’t be as pointed as I suspect he might like […]
Read more...Paul Davies, in “True impact of mark-to-market accounting in the credit crisis,” discusses a paper by Tobias Adrian of the New York Fed and Hyun Song Shin of Princeton University that claim that mark-to-market accounting play a direct, perhaps central role in the credit bubble, and that it works just as dramatically in reverse. Once […]
Read more...The Financial Times today reports that sales of asset backed securities and related debt could easily reach $100 billion in 2008 between the winding up of SIVs and forced selling by the occasional ABS hedge fund player hitting the wall. Note that some, perhaps many, of these players do not have much latitude in the […]
Read more...Many observers have noted that the US is unwilling to take its medicine. In the Asian financial markets crisis of 1997, nations with large current account deficits and domestic asset bubbles saw their prosperity unravel as asset prices collapsed, leading to borrowers defaults, a contraction of credit which spiraled into a crunch, and withdrawal of […]
Read more...A dirty little secret of the bond insurer mess is that the rating agencies not only aided and abetted their ill-fated entry into the structured finance business but apparently prodded them in that direction. Although I had been given this tidbit before, I hadn’t gotten independent verification, but it now comes via a report in […]
Read more...Treasury Secretary Hank Paulson has thrown a bucket of cold water on a number of proposals being floated in Washington to rescue troubled borrowers via the explicit use of public funds, such as the idea of reviving the 1933 Home Owner’s Loan Corporation to buy underwater mortgages and renegotiate them. In some respects, Paulson’s tough […]
Read more...DealBreaker does some serious reporting today, informing us that some traders have told them that the failed auction rate securities market was always dependent on stabilization by dealers. For anyone who has worked in the securities industry, the term “stabilization” pregnant with regulatory significance. Stabilization, as defined by the SEC, is …transactions for the purpose […]
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