We’ve been saying that the legal basis for splitting up the bond guarantors and preferring one group of policyholders (municipalities) over everyone else seems pretty dubious and therefore is likely to trigger litigation. Analysts at Bank of America agree. From Bloomberg: Regulators’ plans to break up bond insurers into “good” businesses covering municipal debt and […]
Read more...Fedwatcher Tim Duy (posting on Mark Thoma’s Economist’s View) read Bernanke’s recent Congressional testimony as saying that further rate cuts really weren’t warranted give the Fed’s medium term forecast. However, Duy has muffed some calls before by assuming that the Fed would stick by its official pronouncements rather than be swayed by the baying of […]
Read more...Those of us who have an eye for trouble have been nattering about the credit default swaps market from time to time. This $46 trillion unregulated market has suddenly captured the imagination after AIG reported in an 8-K filing that it had certain weaknesses in its internal controls and that the value of its credit […]
Read more...Doug Noland at Prudent Bear provides a weekly Credit Bubble Bulletin which includes commentary after his extensive news digest. This week’s report was comprehensive and sobering. While his writing style tends toward the apocalyptic, his message is clear and persuasive: the credit market crisis is worsening, damaging more and more institutions and crippling more and […]
Read more...Be careful what you wish for. New York insurance superintendent Eric Dinallo seems to be getting what he wants. FGIC, the number four bond insurer, was downgraded six grades by Moody’s on Thursday, from Aaa to A3, which meant it has lost its AAA rating from all agencies, and Moody’s warned it could be downgraded […]
Read more...Credit market troubles have the potential to cause considerably more damage to bank balance sheets. A UBS analyst tallies the possible hits as $203 billion, with fallout from the deterioration of bond insurer guarantees as the biggest source of risk. From Bloomberg: The world’s banks “remain at risk” of up to $203 billion in additional […]
Read more...One of the not-sufficiently-acknowledged-in-the-MSM reasons for the current credit crisis is the sharp contraction of securitization, particularly of mortgages. Banks are balking at honoring LBO commitments because they can’t on-sell them as collateralized loan obligations, at least in the current environment. CDO new issues have pretty much halted, with only three deals this year (some […]
Read more...The endgame for the monolines is upon us. As reported in the Wall Street Journal and the Financial Times, New York governor Eliot Spitzer, in testimony before the House Financial Services committee, said that bond insurers needed to conclude deals to raise capital in five business days. Otherwise, they would be split into a municipal […]
Read more...Ohh, the plot thickens. Investment banks are choking on unsold inventory of LBO loans that appears destined to continue to fall in value. These deals are already underwater and expected to hear further south. The interest payments float off short-term interest rates. so the widely anticipated Fed rate cuts will make them even less attractive. […]
Read more...Eliot Spitzer, former New York State attorney general, now governor, savages the Bush Administration in a Washington Post op-ed today (hat tip Mark Thoma). He discusses the measures taken by Federal banking regulators, namely the Office of the Comptroller of the Currency, to stymie state efforts to curb predatory lending. While the article is largely […]
Read more...Bloomberg gives some updates du jour on the bond insurer front. As rumored, New York insurance superintendent Eric Dinallo is considering breaking up the monolines into the muni operations versus everything else: Bond insurers may be split into two pieces to bolster credit ratings and protect municipalities and bondholders, New York’s top insurance regulator plans […]
Read more...We’ve often observed that the reason to keep the banking industry (and Wall Street, now that some firms are too big to fail) on a short leash is that it plays with the public’s money: gains go to employees and shareholders but losses are socialized. We now see a bald-faced example of that problem in […]
Read more...One of the big news items yesterday was the turmoil in the auction-rate securities market, a $330 billion corner of the muni market, which is a direct casualty of the distress with the bond insurers. The specter of Bristol Myers taking a $275 million charge on an $811 million, announced at the end of January, […]
Read more...UBS announced fourth quarter results of a loss of 12.5 billion Sfr, which was in line with its January 30 preliminary estimate. The most interesting item was the breakdown of its $13.7 billion writedown. From Bloomberg: UBS’s writedowns included $10.8 billion on subprime residential mortgages, $2 billion on so-called Alt-A mortgages, which fall between subprime […]
Read more...A Bloomberg story discusses that the Fed will have to lower rates further, despite January retail sales figures that came in better than expected, because lower short-term rates have not led to better terms for borrowers. The story (and perhaps even the Fed) seems to miss why lenders are demanding higher rates: the securitization mechanism […]
Read more...