Category Archives: Credit markets

Are Central Bankers Providing Needed Liquidity or Capitulating? (ECB Intervention Edition)

On Monday, the European Central Bank announced an even more aggressive version of a liquidity facility it had used last August in its efforts to lower interbank lending rates that are stubbornly higher than policy rates. This move is an admission that the coordinated efforts of five central banks last week, including the Fed and […]

New SIV Liquidity Problems to Hit Starting in January

The Financial Times’ Paul Davies, citing Dresdner Kleinwort research, tells us that many structured investment vehicles face acute financial demands beginning in January when their medium term notes, the subordinated layer of their funding, come due. Note that this demand is a new source of stress. SIVs were already on the ropes due to their […]

Is Goldman Insuring Against a Banking Industry "Disaster"?

John Dizard of the Financial Times has learned that Goldman is trying to find a counterparty for a bearish position on banking industry risk. Is this a house bet, a hedge, an attractive product, or is the firm merely trying to find a taker for a punt a client wants to make? Regardless, the actions […]

The FT Misses the Mark on the "Shadow Banking System"

It’s rare that I find fault with the the Financial Times, and even more uncommon with Gillian Tett and Paul Davies, who are two of their most seasoned and insightful journalists. Nevertheless, they have bitten off more than they can chew in “Out of the shadows: How banking’s secret system broke down.” The piece isn’t […]

"Hold tight, the central banks have no plan"

Wolfgang Munchau provides a sober comment at the Financial Times. He agrees with our view (shared by other) that the central bank actions of last week to try to stimulate more interbank lending (which will show up as a fall in the spread between Libor and risk-free rates) are likely to be ineffective and that […]

Further Discussion of the Central Banks’ Attempts to Stimulate Interbank Lending

Steve Cecchetti, Professor of Global Finance at Brandeis, has a nice post at Vox EU, “The Art of Crisis Management: Auctions and Swaps.” The title’s misleading; Cecchetti describes it as a FAQ on the central bank actions of last week to try to close the unusually high and troubling spread between interbank rates like Libor […]

Moody’s: MBIA Not Out of the Woods, FGIC, XL on Downgrade Notice

Moody’s gave its latest take on the financial health of bond guarantors. Interestingly, Moody’s did not find the pending investment of $1 billion into MBIA to be sufficient for the rating agency to reaffirm MBIA’s AAA rating. Was that because they want to see the deal completed, or because, as some commentators have noted, MBIA […]

Gotcha! (Willem Buiter’s Market Maker of the Last Resort Edition)

Willem Buiter ought to annoy me, and yet he doesn’t. While it is no doubt unconscious, he seems overly intent on impressing his readers with his intelligence, which is considerable; he wears his erudition on his sleeve. Yet he manages not to come off as an intellectual snob. While I’m not about to do an […]

SIV Rescue Plan: R.I.P; Is Paulson’s Process to Blame?

The Wall Street Journal has officially sounded taps for the SIV bailout plan that once garnered front-page business news coverage: This week’s decision by Citigroup Inc. to bail out seven investment entities and bring $49 billion in assets onto its balance sheet effectively killed one of the centerpieces of the Bush administration’s approach. The balance […]

Interbank Lending Rates Still Fail to Respond to Central Bank Action

The actions announced by five central banks two days ago continue to leave the money markets unpersuaded. From Bloomberg: The biggest concerted effort by central banks in six years to restore confidence in global money markets is showing little sign of success. The rates banks charge each other for three-month loans held at seven-year highs […]

Mr. Minsky Moment Calls for Rate Cuts

An odd sign of the times, or perhaps specifically, of financial stress; reversals of position. Today we have Citigroup, which previously stated it wouldn’t take SIV assets on to their balance sheet, relenting and doing just that. The Fed makes a few hawkish noises but still delivers a rate cut. Henry Paulson, a believer in […]

Citigroup to Rescue Its Own SIVs

Despite its previous statements that it would not take its SIVs on to its balance sheet, Citigroup has reversed itself, announcing that it will assume $49 billion of SIV assets. The move was prompted by the Moody’s’ announcement that it was reviewing virtually all of Citi’s SIVs for a possible downgrade. A side effect is […]

No Change in Libor After Central Bank Action

Shock and awe indeed. The markets remain unimpressed after yesterday’s coordinated action by five central banks explicitly to address the lack of liquidity in the money markets. The cost of dollar borrowing did fall slightly, but less than expected. From Bloomberg: The interest rates banks charge each other for short-term loans remained close to the […]

Maybe the Real Reason for the Central Bank (Especially the Fed’s) Actions Wednesday

One of the perils of being an evening/overnight blogger is that one is either early or late to news items. But a positive aspect of being on the late side is that one can (hopefully) be thoughtful rather than reactive. Wednesday we had the spectacle of five central banks taking coordinated action to deal with […]

Three Japanese Banks Asked to Back SIV Rescue Fund And Decline

I’ll be the first to confess that I am not current on who the logical suspects are in the loan syndication business these days, but I don’t think Japanese banks are the first parties one would call on. The SIV bailout plan (officially called the Master Liquidity Enhancement Conduit, or MLEC) was initially going to […]