Category Archives: Credit markets

Martin Wolf on the Credit Crisis as a Turning Point

Martin Wolf, the Financial Times’ lead economics writer, is often most interesting when he is agitated. In his current offering, “Why the credit squeeze is a turning point for the world,” he is sufficiently charged up that he has dashed off a piece that in some way is more impressionistic than his usual offering, but […]

Is the Fed Using the Wrong Playbook?

John Dizard, in the Financial Times, tells us how the Fed is giving the wrong medicine to the colicky credit markets. But even though Dizard, in effect, argues that the Fed doesn’t get it, he isn’t taking up the verging-on-hackneyed lament, “the markets are a mess, so the Fed needs to open the floodgates.” Dizard’s […]

Some Revealing Charts

Courtesy Doug Noland at Prudent Bear, these charts illustrate a fundamental problem: debt creation well in excess of economic growth: Now in fairness, rapid growth in debt isn’t necessarily a bad thing, provided it is funding productive investments. But much of the rise in US indebtedness is the result of overinvestment in housing, borrowing to […]

"America faces day of reckoning with debt"

This grim headline appears in the UK’s Telegaph in an article by Ambrose Evans-Pritchard (hat tip Financial Armageddon) which is well reasoned, once you get past its fire and brimestone tone. It argues that the countries with chronic balance of payments deficits are all in dubious shape and can no longer serve as demand engines. […]

S&P Downgrades Capital Notes of All SIVs It Rates

The Financial Times reports that Standard & Poor’s has issued downgrades on the capital notes for all its rated structured investment vehicles (note as far as we can tell, the FT is breaking this story). Bear in mind that capital notes are subordinated debt, generally 4% to 6% of an SIV’s capital structure. No SIV […]

How Citigroup Reduced Its SIV Exposure

A story in today’s Financial Times discusses how Citigroup cut the size of its SIV outstandings from $83 billion to $66 billion. The details, while limited, still start to flesh out the picture. From the Financial Times: Citigroup has slashed the size of its struggling off-balance-sheet investment funds by more than $15bn in two months […]

MBIA To Receive $1 Billion Equity Infusion From Warburg Pincus

Bloomberg reports that monoline bond insurer MBIA, which was at risk of a ratings downgrades due to having guaranteed mortgage-related debt, has gotten a stay of execution in the form of an equity investment by private equity firm Warburg Pincus. While no rating agency has yet confirmed that this capital infusion will be sufficient to […]

Wolfgang Munchau Argues Against Over-reliance on Monetary Policy to Stem Subprime Crisis

A good comment in the Financial Times by Wolfang Munchau on the merits of the various remedies available to address the credit crunch. He argues that for monetary policy to be effective would require deep interest rate cuts (200-300 basis points), risking inflation and still leaving quite a few stressed borrowers no better off. He […]

Societe Generale to Take $4.3 Billion of SIV Assets on to Balance Sheet

Although $4.3 billion is not a large amount of credit by large bank standards, Societe Generale’s decision to take assets of affiliated assets on to its balance sheet is further confirmation that the SIV rescue plan is coming too late to have any impact. From Bloomberg: Societe Generale SA, France’s second-biggest bank by market value, […]

UBS: $10 Billion in Writedowns, Selling Stake to Foreign Investors

When it announced its third quarter writedowns of nearly $4.7 billion, UBS had predicted a profit for the fourth quarter. The planned $10 billion writedoff of subprime-related debt announced today not only will lead to a fourth quarter loss, but may lead the Swiss bank to show losses for the full year. The bank plans […]

SIV Rescue Plan "Increasingly Irrelevant"

A story by Eric Dash in the New York Times, “Big Banks Scale Back Plan to Aid in Debt Crisis,” does a good job of explaining why the SIV salvage operation brokered by the Treasury Department and sponsored by Citigroup, Bank of America, and JP Morgan, may in the end not accomplish very much. The […]

UBS May Take Further Subprime-Related Writedowns

Both Bloomberg and MarketWatch feature stories on the possibility of further mortgage-debt triggered writeoffs at UBS. Readers may recall that the markets took cheer when UBS announced its third quarter chargeoffs, believing the bank and its peers were putting their troubles behind them. However, the bank now has lower MarketWatch cited a Swiss newspaper that […]

"The trouble with the Paulson plan"

An article by Clive Crook at the Financial Times which focuses on the inconsistencies (one might say hypocrisies) and failings in the subprime rescue plan announced last week. Because this program will provide only limited relief, he foresees that more rescue efforts, with costs to taxpayers, will follow. From the Financial Times: “This is a […]

Rising Inflation Expectations Conflict With Fed Rate Cut

A story on Bloomberg notes that the Fed has been sanguine so far about inflation because inflation expectations haven’t seemed to be rising. However, a measure the Fed relies upon, the five year forward inflation rate, has risen above the level that led the Fed to start its rate increases in 2004. In other words, […]

"Superfund pill fails to treat the SIV illness"

A concise comment by Francesco Guerrera in the Financial Times on why the SIV rescue plan is misguided and therefore will be ineffective. Although some of the issues have been discussed elsewhere, Guerrera gives a crisp treatment, and takes issue with a key assumption, that the bank sponsors can’t afford to take SIV assets on […]