Category Archives: Credit markets

Bond Insurer Update: Surprisingly Positive Noises from the FT; Egan Jones Conference Call

Despite the seeming absence of news on the bond insurer rescue front (the only development reported was the selection of the boutique M&A advisory firm Perella Weinberg to assist the State of New York in its efforts to put a deal together), the Financial Times has four articles on it today, from the neutral to […]

Fed Approaches Negative Real Interest Rate Territory

While the question of whether the Fed will lower interest rates again after its emergency cut last week is still up in the air, it is pretty clear that further cuts in the Fed’s target rates are in the offing. And the markets believe the Fed will continue to cut quickly, putting the odds of […]

Credit Crunch Collateral Damage: Deal for Credit Card Processor on the Rocks

Blackstone’s pending $6.4 billion acquisition of Alliance Data Systems, a major credit card processor, may become an unexpected victim of the credit crunch. The deal is foundering not for the usual reasons, such as difficulty in raising debt financing or a change in business conditions leading the buyer to try to renegotiate the deal. In […]

IMF, Larry Summers: The Wile E. Coyote Moment Has Arrived

There has been a fair bit of discussion of the so-called Minsky Moment, when an economy that has build a house of cards of speculation and over-leveraged “Ponzi units” (creditor that could never make good on their commitments, and are viable only by finding new suckers to give them new debt to pay old lenders) […]

What Happened to the Promised S&P and Moody’s Review of MBIA and Ambac?

Why have the rating agencies failed to deliver on actions they promised to take? Remember the announcements that helped feed into the overseas market rout last Monday? This story ran January 16 on Bloomberg: Standard & Poor’s will start a new examination of bond insurers, one month after affirming the companies’ AAA ratings, because losses […]

Credit Default Swaps Increase Odds of Bankruptcy

We’ve discussed before how credit default swaps, which is in essence insurance against the default of particular issuer or index, poses risks to the financial system via counterparty failure. The notional amount of CDS is $45 trillion, but much of that is believed to be fully or nearly fully hedged via offsetting positions. The problem […]

"Paying the Price for the Fed’s Success"

I try to avoid being too dependent on a single news outlet on any particular day, but it is Sunday, and the New York Times happens to have a higher hit rate than usual on relevant pieces. Reader Independent Accountant chided me for not pointing to the artilce below by the reliable and thoughtful James […]

Ben Stein Tells Us It’s All the Traders’ Fault

Here we go again. We have another Ben Stein column, “Can Their Wish Be the Market’s Command?” which says, I kid you not, that we have a bear because a whole bunch of traders got together and made it so. Since undue contemplation of Ben Stein logic is bad for anyone’s mental health, I will […]

Robert Shiller Calls for More Encompassing Solutions to Credit Market Woes

In today’s New York Times, Yale economist and author of Irrational Exuberance Robert Shiller says, in effect, that the problems in the financial system are large enough to call for large scale, possibly even radical remedies. Shiller admits to not having a notion of what those measures should be. He does call for some changes […]

"Welfare for Wall Street, Federal Reserve-Style"

Thomas Palley posts only occasionally, but just about everything he writes is first rate, and today’s offering is no exception. Palley argues one of our favorite views, that the Federal Reserve interest rate cuts have had more to do with trying to prop up asset values than with stimulating growth. He points out that this […]

Massachusetts Subpoenas MBIA and Ambac Over Disclosure

A reader pointed us to the fact that the State of Massachusetts has issued subpoenas to MBIA and Ambac regarding bond issued by Massachusetts cities and town that they guaranteed from January 1, 2006 onward. According to CNN, the state is investigating whether the insurers made adequate disclosure of their involvement in mortgage-related instruments. Put […]

Willem Buiter Heaps Scorn on Fed’s 75 Basis Point Rate Cut

Willem Buiter’s immediate reaction to the Fed’s emergency rate cut earlier this week was sharply negative, and upon reflection, his view has become even more critical. Buiter sees the reason for the cut as a “knee jerk” response to the prospect of a sharp fall in equity prices. He looks at the proximate causes of […]

Further Bank Writedowns: Barclays Says $143 Billion for Bond Insurance; Oliver Wyman Says $300 Billion in General

Bad credit-related news continues, and if the Dow is any measure, the stock market response is subdued. Barclays estimates that the losses that banks would take due to bond insurer credit rating downgrades and the impact on the instruments they insured would be $143 billion if they are downgraded to single A (I find that […]

So Far, Hype Exceeds Progress on Bond Insurer Rescue Front

Despite New York insurance superintendent Eric Dinallo’s desire to move a rescue of bond insurers along with all possible speed, and the very real pressure of an imminent downgrade (note that Security Capital Insurance was downgraded five levels by Fitch yesterday from AAA to A), there was perilous little in the way of progress. Indeed, […]

Egan Jones: Bond Insurers Need $200 Billion to Retain AAA

Bill Ackman of hedge fund Pershing Square has gotten a considerable amount of flack for his outspoken, negative views of the bond insurers, particularly MBIA and Ambac, which his firm has shorted. Ackman has been circulating a detailed analysis that estimates that the additional equity needed to maintain an AAA rating at the two biggest […]