Category Archives: Credit markets

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 […]

AAA Bond Insurer Security Capital Put on Watch by Fitch

Bloomberg reports that Security Capital is the first top-rated bond insurer to be put on watch for a possible downgrade. Note that Fitch says that Security Capital needs an additional $2 billion in equity to retain its AAA. Given that industry leader MBIA just secured $1 billion from Warburg Pincus, and many were surprised at […]

Central Banks Coordinate to Inject Liquidity, First Time Since 9/11

Bloomberg reports on the coordinated effort by major and even some not-so-major central banks (Canada’s and Switzerland’s central banks are included) to tackle high interbank lending rates. One investor called it to “shock and awe,” which is a worrying comparison. In fact, the plan does not add net liquidity, but merely provides additional one-month term […]

Parallels Between the Health Care and the Credit Market Messes

Readers invited to contribute: Once simple commercial relationship (doctor-patient, lender-borrower) made complex in the pursuit of efficiency System increasingly looks to be broken, yet degree of specialization and integration makes it difficult to launch reform/improvement programs Incumbents argue that change will stifle innovation Many middlemen add costs that critics argue are out of proportion to […]

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 […]